- The comparison is between two net worths, not two monthly payments — money not spent on a down payment has to be doing something.
- Selling costs are charged once, at the end, so the longer you stay the more years the buy side has to dilute them across.
- At the default assumptions renting stays ahead for the whole ten-year window; one extra point of appreciation flips that.
- The verdict turns on two numbers nobody can know in advance — home appreciation and investment return.
How the rent vs. buy calculator works
This is not a monthly-payment comparison. Both scenarios are scored in the same unit — the net worth you would hold at the end of the period — because the gap between a mortgage payment and a rent cheque says nothing on its own about where the rest of the money goes. A payment gap can make renting look cheap over a month and expensive over a decade, or exactly the reverse.
Buying: the home appreciates at the rate you set, the mortgage balance falls as you pay it down, and selling costs come off the sale price at the end. What is left is your equity. Renting: the down payment you did not spend is invested from day one, and in every month owning would have cost more than renting, that surplus is invested too.
The year-by-year table below is the point of the exercise. Selling costs are a one-time hit that gets diluted the longer you stay, so the two lines can cross — and the table names the year they cross, or says plainly that they never do inside the window.
The math
The buy side: home value is the price times (1 + appreciation) to the power of the years held. The mortgage balance is the standard amortization balance after years × 12 payments. Selling cost is a percentage of the final value. Net worth if you buy is value minus balance minus selling cost.
The rent side: the down payment is invested as a lump sum, and the monthly surplus — mortgage payment plus owner costs, minus rent — is invested as a contribution every month. Both compound monthly at the investment return you set, and net worth if you rent is the future value of that portfolio.
What the model deliberately leaves out: rent is held flat rather than escalated, closing costs on the purchase are not charged, owner costs are a flat percentage of the original price rather than of the current value, and no tax treatment is applied to either side. The honest summary is that this weighs one long-run assumption against another — appreciation against investment return — and the verdict moves whenever either does.
Worked example
The calculator opens on a $550,000 home with 20% down ($110,000) at 6.5% over a 30-year amortization, against $2,400 a month in rent, staying 7 years, with owner costs at 2% a year, appreciation at 3%, an investment return of 5% and selling costs at 5%. After 7 years the renter holds about $283,686 and the owner about $242,135 — renting is ahead by roughly $41,552, and stays ahead for the full ten-year window.
Change one number. Raise appreciation from 3% to 4% and buying pulls ahead in year 7 instead; raise it to 5% and buying is ahead from year 3. That single percentage point outweighs every other assumption on the page, which is the real answer to “should I rent or buy” — it turns almost entirely on a number nobody can know in advance.
Key terms
- Home appreciation
- The annual rate at which the home’s value is assumed to grow. Compounded over the whole period, it is the single most influential input on the page.
- Opportunity cost
- The return you give up by tying money into a down payment instead of investing it. It is exactly what the renting scenario measures.
- Selling costs
- Agent commission, legal fees and the other costs of closing a sale — charged here as a percentage of the final value, and the reason short stays favour renting.
- Home equity
- The home’s current value minus the mortgage balance still owed on it. The buy scenario’s net worth is this figure, less what it costs to sell.