Home Financing Tools

Rent vs. Buy Calculator

Compare the long-term net wealth impact of buying a home versus renting and investing the difference.

Rent vs. Buy Parameters

$
$50K$3M
20%
0%50%
6.50%
%
$
3.0%
4.0%
7.0%
Down Payment$100,000
Loan Amount$400,000

Financial Advantage

$12,386
Renting Wins
Net Wealth from Buying$259,917
Net Wealth from Renting$272,303
Break-even year3

Monthly Cost to Buy

$3,611.61/mo

P+I+Tax+Ins+Maint

Monthly Cost to Rent

$2,500.00/mo

Rent + Ins

Estimated Home Value

$661,257

Remaining Mortgage: $361,665

Investment Portfolio

$274,803

Selling Costs (6%)

Wealth Comparison Over Time

Compares home equity growth vs. invested savings portfolio year by year.

AdvertisementBanner
Ad

The Opportunity Cost of Your Down Payment

When you put $100,000 down on a home, that money is locked into the property. If you rented instead, you could invest that same $100,000 in the stock market. At a 7% average annual return, $100,000 grows to about $196,000 over 10 years. This is the opportunity cost of buying — the investment returns you give up by tying up your cash in a down payment instead of the market. The Rent vs. Buy calculator factors this opportunity cost into both scenarios so you can see the true financial impact.

Unrecoverable Costs: Buying vs. Renting

Unrecoverable Costs of Buying

When you own a home, money you spend on mortgage interest, property taxes, insurance, maintenance, and closing costs is gone forever — you never get it back. Only the principal portion of your mortgage payment builds equity. On a $500,000 home with a 7% rate over 30 years, you pay over $697,000 in interest alone in the first 10 years. Add property taxes (~$6,250/yr), insurance, and maintenance (~1% of home value annually), and your unrecoverable costs can exceed $15,000 per year. These are sunk costs that reduce the net wealth benefit of homeownership.

Unrecoverable Costs of Renting

When you rent, 100% of your monthly payment is an unrecoverable cost — none of it builds equity. However, if renting is cheaper than buying, you invest the monthly difference. On a $2,500/month rental, your unrecoverable cost is $30,000/year. But if buying would cost $3,800/month, the $1,300/month difference invested at 7% grows to about $225,000 over 10 years. The key question is whether your invested savings from renting can outpace the equity you would build by buying.

Why Time Horizon Matters

Short Horizon (1-5 years)

Renting usually wins over short time horizons. Closing costs (3% of home price), selling costs (6%), and the slow equity buildup in early years mean you need to own for at least 5-7 years just to break even. On a $500,000 home, that's $45,000 in transaction costs alone. If you might move within 5 years, renting is almost always the better financial choice.

Long Horizon (10+ years)

Buying tends to win over long horizons. As years pass, your mortgage balance shrinks while home value appreciates — equity compounds. Meanwhile, rent rises with inflation, and the gap between renting and buying costs narrows. After 10-15 years, the equity built through appreciation and principal payments typically surpasses the investment portfolio from renting, making buying the wealth-building choice.

Frequently Asked Questions

Related Financial Calculators

AdvertisementBanner
Ad