The ULTIMATE Rent vs. Buy calculator

Which is better, renting or buying?

Results do not yet take into account the new changes to the tax code. I'll update it when I can find the time.

Simple Deluxe Click any field's name for an explanation.
Last update: Dec. 2015

 Buying assumptions

   The Loan
$ Sale price of the house
Down payment  ()

Mortgage term

Mortgage interest rate

Yes Closing costs rolled into mortgage

Monthly payment
  ( with taxes, ins., & PMI)

Account for PMI costs?  
Credit Score (to figure PMI rate)
Loan is FHA (not conventional)
$ Closing costs

Initial Maintenance

$ Maintenance (annual)
$ Monthly assoc. fees, extra utilities

Inflation rate for above expenses

$ Property Taxes (annual)
$ Homeowner Insurance (annual)

$ Monthly rent collected
  Home Value

Appreciation rate  (more info...)

Commission/Closing Costs on resale
$ Initial home value (if not sale price)
  Federal Taxes
Yes Take tax deductions
$ Other deductions
$ Standard deduction
$ Max. mortgage for deductibility
Marginal tax bracket
Yes Estimate capital gains tax on resale
Capital Gains tax rate
  Tax-free profit amount ?

Renting assumptions


Rent +insurance   (P/R ratio=)

Rent inflation

Interest on investments

Capital gains tax rate

Results Summary

Scroll down for a huge table of year-by-year results.

Results numbers
The table below shows how much you're out whether buying or renting. For buying, it's basically how much you spent less the value of the house you got in return.

Show results after year # .

Buying Renting
Cash spent
-   Home value
  Balance on Loan
  Closing costs on resale
  Tax paid on resale

Net spent
(if not investing)
(lower number wins)

Less return on investment

Net spent
(lower number wins)

See below for even more detailed results!

Special thanks to Geoffrey Bishop, who identified many ways to improve the calculator.

"When I saw [this calculator], I was immediately jealous.... The author is certainly right - his calculator is far more complex and accurate than anything else that I have seen. I highly recommend that you use it." -- The Legal Dollar

"The Michael Bluejay calculator that I discussed in my previous article will tell you which way is better for your particular situation. I personally find it to be a good calculator and I will urge you to try it i.e. if you haven't." -- Joel D. Ramphoi of The Botswana Gazette and Market Risk Manager at Stanbic Bank Botswana

"It's the best, most customizable calc I've seen on the topic." -- reader

"Probably the best and most complete renting vs. buying calculator I've seen." --

"If you are trying to decide if you want to rent or buy, [Bluejay's] calculator may be the best tool I've found for that." -- Martha O'Hayer, realtor with Frank Howard Allen Realtors

This calculator is used in the IT1020 class at Central New Mexico Community College taught by Denise Weaver Ross.

Introduction to the Renting vs. Buying Calculator

It's almost always better to buy a home than to rent.  Only when at least one of the following applies is it probably better to rent:

  • Your rent is lower than average—and you expect it to stay that way.
  • You plan on moving in a few years.
  • You're in a super-expensive housing market (like San Francisco or Honolulu). Otherwise, Trulia says that buying is now better than renting in 98 out of the 100 largest U.S. metro areas.
  • You can get better-than-average returns from whatever you're investing your cash into.
  • The house you would buy is a lot larger than what you would rent.

Everyone's situation is different, and that's what this calculator is for: It'll give you an answer for your specific situation.

Here's a very handy rule of thumb I came up with: Just multiply your monthly rent by 240. If you can buy a house for less than that, then buying is usually better in the long-term.

There are lots of rent vs. buy calculators on the net but I found most of them confusing, hard to use, or woefully incomplete. So I set out to make the ultimate rent-vs.-buy calculator, which would be easy to understand, easy to use, have every field explicitly defined, and provide both a really useful summary as well as detailed year-by-year data. Here's why I think this calculator is better than the rest:

  • Includes sample values so you can see a comparison right away
  • Automatically calculates PMI/FHA fees, closing costs, taxes & insurance, and maintenance based on the purchase price
  • Automatically recalculates when you change any value
  • All input and results are shown the same page
  • Shows you the results year-by-year (not just at the end of the mortgage term)
  • Optionally shows results for a full 40 years into the future
  • Shows the value of each of 19 different variables, for each and every year
  • Built-in help for every input field

There's no other calculator on the net that does all this.

I'm offering a cash prize of $100 to anyone who finds a calculation error of more than $1000 in the Results Summary using the default values (excluding: rounding errors/differences, an alternate way of estimating some figure which necessarily has to be estimated rather than calculated exactly, and differing tax results based on changes to the tax code, since it's always changing).)

Remember, any calculator is only as good as the assumptions. If you put bad data in, you'll get bad data out. One of the biggest factors in whether it's better to buy or rent is the appreciation rate:  A small change in the appreciation rate means a big difference in the bottom line. Unfortunately you (and I) can't predict future appreciation rates, so the answer we get from any calculator doesn't come with any degree of certainty about what's actually going to happen. Still, it's worth knowing whether buying looks much better or much worse than renting, given reasonable assumptions.

Mega Data Table! (detailed results of Rent vs. Buy)

In pink-row years renting is better. In green-row years buying is better.
 Light gray columns are figures for that year.    Dark gray columns are running totals.
All fields are explained in detail below the table.

(Google picks the ads, not me.)


Explanation and Discussion

It's usually better to buy than to rent, but not in every case, and usually not right away.  It usually takes at least a few years for buying to become a better deal than renting.  That's because there are some big up-front costs when buying, and your monthly payments from buying are generally higher.  However, those payments are building equity in your home -- you're "keeping" some of what you're paying.  Also, while you're making your payments, your home generally appreciates in value. After some number of years the equity you've paid into your home plus the appreciation will usually overcome the extra money you had to pay to get into the home. That's what this calculator tells you.

Any calculator is only as good as the assumptions.  Probably the biggest assumption in this calculator is the appreciation rate.  If your home appreciates faster than the value listed in the calculator, buying will be a much better deal than the calculator shows.  If your appreciation is less than what you input, buying won't be as good as the results say, and could even be worse than renting.  Another assumption is that if you rented, each year you'd invest the money you save by renting.  If you don't actually do this, or if your rate of return is different than what you feed the calculator, the results won't be accurate.

Also remember that "better" and "worse" are subjective terms.  If it costs $25,000 more over 30 years to buy a home rather than to rent, you still might consider buying to be a "better" deal because it's worth the small difference in cost (less than $1000 a year) for the pride and comfort of owning your own home.  The calculator simply reports results based on some assumptions; it doesn't tell you what you should do.  Only you can make that decision.

There's built-in help for most of the items in the calculator.  Just point to any field name and a little box will come up to explain it in more detail.  Below I'll cover just the things that aren't included in the help, or which bear repeating.

Since some readers have complained that there's not a field for Renter's Insurance, I'll point out here what I thought would be obvious:  If you have (or will buy) renter's insurance, just add the amount to your rent, and enter that as your total rent.  Simple.

The most important part of the calculator is the blue "Results" section.  This tells you whether buying or renting is the better deal.  The results are after a certain year.  The default is the same number of years as the mortgage. But you can tell the calculator to give you results for a longer period of time, by changing the "Show results after year #" box.  For example, if you get a 30-year loan, you could tell the calculator to compare buying vs. renting after year 40.

Anyway, let's take the results in the Results summary table line-by-line.

Cash Spent. This is how much it cost you to either buy your home or to rent. Since we're comparing how much you paid in each case, the lower the number, the better. (A lower number means you spent less.) For buying, the Cash Spent includes your down payment, your monthly payments, PMI, taxes, insurance, maintenance, and any other expenses like condo/association fees or extra utilities you're paying for because your house is larger than your apartment.  For renting, it includes just rent.  You'll almost always pay more to buy a home than to rent. What makes buying a better deal is that you build equity in your home.

Home Value.  This is how much your home is worth. This is your investment, so we subtract it from the Cash Spent to buy your home. For example, you might have to lay out $700k over 30 years to buy your home, but after 30 years your house could be worth $500k. Since you have $500k of value, it really cost you only $200k to buy your home.

Balance on Loan.  This line shows up only if you choose to show the results for a year before your loan is paid off. If you do, then you'll see how much is left to be paid on your mortgage, because your credit for Home Value above is reduced by the amount left on your loan.

Typical seller's closing costs
Sales Commission
6% (3% paid to buyer's agent,
 3% paid to seller's agent)

Real estate transfer tax
0-2%  of sale price (0.3% typical)
See rates by state (PDF)
Settlement processing fee
Title insurance
Deed & Transfer preparation
Courier to pay off mortgage
~$10 to $50
Recorded release of mortgage
  (if applicable)
~$20 to $150
You'll also pay prorated property taxes at closing, but it's not really a
 "closing cost", since you'd owe it anyway even if you didn't sell.

Closing Costs on sale.  When you sell your home, you generally have to pay a 6% commission on the sale, and some other closing costs which we estimate to be around another 0.5% of the sale price.  Even if you don't plan on selling, you have to know that your home is really worth about ~6.5% less than it's worth on paper, so we can compare its true value to the cost of renting.  As with everything else in the calculator, you can change the commission percentage figure if you like.  The Closing Costs figure is shown on its own line in the Results Summary, though in the Mega Data Table it's built into the House Value (net) figures (whose values have been reduced to account for the closing costs).  Above is a table of common seller's closing costs. See more about seller's closing costs at ThinkGlink.

Tax paid on sale.  Most homebuyers won't actually pay any tax, since they either won't sell their home, or the home didn't appreciate enough to be subject to tax -- you get to keep the first $250,000 of gain free as of 2009, and the calculator assumes that this amount increases with the rate of expenses inflation.  So if you don't owe any tax on the sale, this line won't show up. Note you can tell the calculator to not estimate taxes for those rare cases you'd be subject to it, by unchecking the "Capital Gains on Sale" box.

Net Spent (before considering investments). This shows you the total of how much you spent for either buying or renting.  It's everything you paid out less the value you built.  For buying, that's all your expenses, which are offset by the equity you have in your home.  As a renter who didn't invest, you don't have any equity.  (But some renters do invest, and that's what the remaining lines cover.) Since this Net Spent line item is the total amount spent, the lower number wins. A lower figure means you spent less money.

Return on investment.  Since it generally costs more to buy a house than to rent on a monthly basis, at least in the early years, some people invest the money they save by renting instead of buying.  For example, they put that money into mutual funds.  That way they can build an investment, too, just like a homeowner.  But while this does improve the value of renting, it's usually not enough to make renting better than buying.  That is, it's usually still better to buy than to rent.  The calculator can tell you for sure.  Note that some people prefer to go with this "invest the difference" strategy even if it's a worse deal because they don't want to get tied down to a home, or they know they won't own the home long enough to make it profitable.  Do note that you get the value of investing the difference only if you religiously invest all the savings you get from renting instead of buying.  I'm not sure most people are disciplined enough to do this, and if you fail to invest properly then you won't get the kind of returns listed in the calculator.  That's another nice thing about buying a home -- it's a kind of forced, automatic investment.

     The Return on Investment listed is just that -- the return on the investment.  That is, it doesn't include the principal of the investment itself.  We compare apples to apples for renting vs. buying because on both sides we consider only the return generated.  We do this on the renting side by listing only the return, and never counting the principal we paid in.  We do this on the buying side by figuring the principal we paid in, but then subtracting it out again.  Finally, note that the investment value shown in the calculator is the net amount after estimated capital gains tax.  Of course, you can change the capital gains tax rate in the calculator.  (By the way, for simplicity the calculator assumes that all the savings from renting instead of buying is invested at the beginning of the year, even though the savings actually occurs throughout the year. The difference is negligible and I don't consider this an error for the purposes of claiming the "Find A Bug in the Calculator" prize.)

Net spent (bottom line). This is the final comparison of buying to renting. It's the total amount you're "out", considering how much you spent less any value you built. Since this is the net amount you spent, the lower number wins. Whichever side is lower, that side is the better deal.

Since the rent-vs-buy calculation is sometimes misunderstood, here's some more detail.  There are two ways to run the numbers: by comparing how much you're out for renting vs. buying (which is the way I do it), or by seeing how much you built (which is not how I do it, but the results are the same).

Let's look at each way, comparing the results for year 1 using the current defaults.  (The values below came from Year 1 in the Mega Data Table.  In the future I might update the defaults and forget to update this section, but it should still be easy to follow).  Whichever method we use, the key to doing an apples to apples comparison is to make sure that we're not counting principal on one side but not the other.  We do this on the Renting side by never considering principal at all.  We do it on the Buying side by counting the principal (equity) we paid in, but then subtracting it out again.  Anyway, here are the two methods.

Method 1: How much you're out

Buying Renting
Amount Spent Cash out $28k Rent paid $12k
Offset by Wealth Built House value - outstanding loan -1k Return on inv. -1k
Total Amount Out



On the Buying side, some of our cash out was for the down payment, and some was for the principal portion of our loan payments.  We then subtract out that principal in the "Offset" line, so there's no net principal on the Buying side.  For the Renting side, we simply never considered principal at all.  For our Amount Spent, we could have added in the principal we invested, but then we'd just have to subtract it out again, so it's easier to just not list it in the first place.

Now let's look at the method of looking at how much we built.  This time we'll include the principal on the Rent side, because when we think about what we've got, we tend to think of principal.  But ultimately it doesn't matter because we just subtract it out again, because we're not counting principal on the Buy side, so we need to zero it out on the Rent side also.

Method 2: How much you built

House value - outstanding loan
Principal invested

Return on inv.
Less Cash Out
Cash out -$28k
Rent paid -12k

Principal invested -16k
Net assets



Mega Data Table results explained

This table shows detailed results for 19 separate variables, year-by-year. And for the most part it's unnecessary. Most people can get what they need from the blue "Results" summary box in the calculator.  But for those who want extra data, it's all here.  I'll explain about that data now.

First, understand the difference between current year and total values.  That is, some of the cells report a value only for that year while other cells report a total for the current year plus all previous years.  For example, the "Pmts." column is the amount of payments that have been made for a given year.  But the "Paid Equity" column shows all the paid equity that's been made to date.  To make this distinction clearer, the columns which are totals-to-date have headers shaded in a darker gray.


A couple of the things this calculator gives you that others don't are a complete listing of all variables for every single year, plus the ability to look far into the future.  Here you always get a full 40 years' worth of data.

Years in which renting is better than buying are shown in pink.  Years in which buying is better than renting are shown in green.  The comparison assumes that money saved each year by renting instead of buying is invested elsewhere.  If you want to turn off that idea, just set the Return on Investments rate to 0%.

All figures are as of the end of the year listed.

Loan Details (when buying)


This is the interest you pay to the bank each year for the mortgage loan. Notice that it goes down a bit each year. That's because you're paying interest only on the outstanding debt, and your debt goes down through the years as you make payments. Every month a smaller portion of your payment goes to interest and a higher portion goes towards principal -- paying down your debt. Here's more on how mortgage interest is calculated.

Loan Balance

The Balance is the amount outstanding on your loan. The initial balance includes closing costs, if you chose to roll those into the loan. The balance goes down each year as you make your monthly payments. Notice that it goes down very slowly at first and then very quickly at the end. That's the nature of mortgage interest. See the page about mortgage interest to understand more.

Buying (cash out)


This is how much you pay the bank each year towards your loan, not including taxes, insurance, and PMI, which are listed in the table separately. Of course, you're making payments monthly, but the table is summarized by year for simplicity. Notice that your payment never changes over the life of the loan. This is one of the big advantages of buying a house: you lock in your monthly payment. When you rent, your rent goes up constantly with inflation. But when you buy you get to lock in your payment. This advantage is rarely mentioned for some reason, but it's power shouldn't be underestimated. The amount you pay for taxes, insurance, and maintenance goes up each year with inflation, but the biggest part -- the monthly payment -- stays the same.

In Year 1 this column also includes your down payment.

PMI / FHA fees

PMI and FHA fees are mortgage insurance you have to pay for when your down payment is below a certain amount.  You get PMI on conventional loans with a down payment of <20%, and FHA fees on FHA loans with a down payment of <22%.  The values in the calculator are just estimates since the actual amount is based on factors that neither you nor the calculator know, but it should be close enough for estimating purposes.  For more, see my special page on PMI and FHA fees.

Taxes & Insurance

When you own a house you have to pay property taxes to your local government, and you have to pay an insurance company for a policy to reimburse you in case your house burns down. Your lender will make this easy by adding these amounts to your monthly mortgage payment, and then once a year your lender will pay your taxes and insurance for you. This is called 'escrow', and there's no charge for this service. If you prefer, you can pay your taxes and insurance yourself, separately. If you want to do that, just let your lender know before the papers are signed, because this decision affects how the loan papers are drawn up.

The calculator estimates taxes and insurance but you can enter your own value if you like, and lock it in with the lock box. Unless you specify otherwise, the calculator uses the U.S. average rate of 1.38% for property taxes and 0.5% for homeowner's insurance. (See a list of average property tax rates by state.)

Either way, the calculator increases this amount each year to account for inflation. You can change the inflation rate by clicking on the "Deluxe" tab.

Maintenance ond Other Expenses

This is where we account for the costs of maintenance, any condo/homeowners' association dues, and any extra amount you're spending on utilities by virtue of living in a larger house vs. a smaller apartment.

If the amount listed for maintenance seems excessive, consider that every 10-15 years you'll likely need a new roof, a new exterior paint job, and a new AC/furnace, each of which will cost several thousand dollars. You can avoid the roof replacement cost by getting a metal roof which will last longer than you (and which will lower your cooling bills). You can avoid the repainting cost by getting a brick house instead of wood (or putting aluminum or vinyl siding over the wood).

The calculator estimates the annual maintenance cost, but you can enter your own value and lock it in with the checkbox.

The calculator adjusts the annual maintenance amount for inflation each year."

Tax Savings

U.S. homebuyers get a piddling deduction on their federal taxes for the mortgage interest, PMI, and property taxes they paid, if they itemize, and only if their itemized deductions are above a certain amount. This is really a handout to the rich in disguise, since the rich buy bigger homes and pay more mortgage interest. If no one got a mortgage interest deduction, overall tax rates could easily be lower for everyone.  And of course, people who must rent because they can't afford to buy don't get this handout.

The Tax Savings column is controlled by the Take Tax Deductions button.  If you know you're not getting this deduction (e.g., you don't itemize deductions, or you live in a country which doesn't offer this deduction, or your deduction is disallowed because your income is too high), uncheck the Take Tax Deductions button.

The tax savings are based on the Marginal Tax Bracket field.  That's the highest interest rate you pay on your taxes.

Clicking the Deluxe tab at the top of the calculator shows more options for refining the tax calculation.  One of those is the Other Deductions field, where you can enter the amount of other deductions you plan to itemize, other than housing deductions (mortage interest, PMI, and property taxes).  Three examples:

Deductions Extra deductions realized by buying

9000 Standard Deduction

4000 Housing Deductions

4000 Other Deductions

$0.  The amount of deductions we can take by buying the house isn't greater than the standard deduction that we were already allowed to take.

9000 Standard Deduction

4000 Housing Deductions

6000 Other Deductions

$1000.  By buying the house our total deductions are now $10,000, which is $1000 more than the standard deduction of $9000.  So our benefit vs. the standard deduction that we could have taken had we not bought the house is $1000.

9000 Standard Deduction

4000 Housing Deductions

20,000 Other Deductions

$4000.  Even before buying the house, our deductions were greater than the standard deduction.  By buying the house, we realize an extra $4000 in housing deductions.  So our tax benefit is an extra $4000 in deductions.

The calculator assumes that you're really able to take all the Other Deductions you enter, that they're not limited for some reason. The Other Deductions amount increases every year for inflation (at the rate set for Expenses Inflation).

Cash out

This is how much money you spent towards your home in a given year. It includes your mortgage payments, PMI (if any), taxes, insurance, and maintenance. In year 1 it also includes your down payment, and initial maintenance and closing costs if not rolled into the mortgage (which might not be obvious). But notice that year 2 costs less than year 1. That's because in year 2 there's no down payment or initial maintenance. Then the cost starts rising in future years with inflation. Then when your mortgage is paid off the Cash out per year plummets, since there's no more mortgage payment. This is year 16 or 31 for 15- and 30-year mortgages respectively.

But something else special happens well before that in most cases: The cash you spend for buying each year becomes less than the cost of renting! When this happens I highlight those cells in a darker green. Buying becomes a better deal even before you consider all the equity you have in the home. You actually spend less to buy than to rent! So much for the idea of renting and "investing the difference" that some people favor. When buying becomes cheaper than renting, there is no difference to invest.

Total cash out

This is the running balance of how much you've spent on your house to date. It's the sum of the Cash Out column for all years up to that point. You can compare this to the "Total Rent" column to see the running balance of rent paid. But this doesn't tell you whether buying or renting is a better deal, because that doesn't take into account the equity you've built in your home. That's answered in the last column, Rent vs. Buy. (Negative values mean renting is better, positive values mean buying is better.)

House Value

Paid Equity, Appreciation, and House Value

All three columns are running balances (i.e., the balance to date), not the amounts for just the year listed.  Note that the House Value amount is reduced by any taxes and closing costs you'd pay on the sale.

Equity is the portion of your home that you own (vs. the outstanding amount of the mortgage). There are two kinds of equity. The first is Paid Equity, which comes from your down payment plus the principal portion of all the loan payments you made. Once you've made all your loan payments, your Paid Equity will equal the original purchase price of the home.

The other kind of equity is Appreciation, which is amount your house increases in value just by sitting there. Your house gets more valuable automatically as time passes, kind of like inflation. You can set the rate of appreciation in the calculator, but the default value of 3.5% is probably the most accurate for long-term use. (Many people think that homes appreciation faster than the general rate of inflation, but I don't think that's true, as I explain in my article about appreciation. I strongly suggest you not set the appreciation rate higher than the inflation rate.)  Anyway, the point of appreciation is that it offsets the amount it costs you to buy your home.

You might think, "What good is equity?  The money is locked in the house. I can't eat my home."  Ah, but the equity does benefit you.  Here are just two examples of how.  First, once your home is paid off, your equity has earned you the right to stop making any more mortgage payments.  No more writing a check to the bank every month.  Second, any time after you turn 62 you can get a Reverse Mortgage, which lets you cash out the value of your house (either as a lump-sum or a monthly amount), while still living in the house. In fact, as long as you live in the house, you don't have to pay the Reverse Mortgage back!  That will be up to your heirs, but it will be easy for them to do so, since they can just
sell the house to get the money.

The House Value (net) is the original price, plus appreciation, less any capital gains tax on the sale, less any closing costs paid on the sale.  (If you believe you can sell your house at a lower commission rate or with no commission at all, you can change the "Commission/Closing Costs on sale" rate in the calculator.)

In most cases you won't pay any taxes if and when you sell.  (And again, you can turn off the tax calculation by unchecking "Estimate capital gains tax on sale".)  Most homebuyers won't pay any tax, since they either won't sell their home, or the home didn't appreciate enough to be subject to tax—lots of the gain simply isn't subject to tax.  Single filers get the first $250,000 of gain free, and married filing jointly get the first $500,000 of gain free. (figures current as of 2015)  The calculator assumes that these amounts increase with the rate of expenses inflation.

This kind of investment contrasts with investing the cash saved by renting as a renter, where you'd have to sell your investment in order to cash in on it, and thus would have to pay taxes, and no part of it would be excluded.  When you own a home you can enjoy the value of your investment without selling it, by either continuing to live in it after you've paid off the mortgage (at which point you have no more mortgage payments), and optionally getting a reverse mortgage at any time after age 62, which allows you to extract cash value from your home in either a lump-sum or as monthly payments, and which you won't have to pay back as long as you live in the home.  (Your heirs pay back the reverse mortgage loan, but it's easy for them to do so, since they simply just sell the house to get the money.)  Next, even if you sell your home, you likely won't owe any taxes, since a huge portion of any gain on the sale is tax-free, as explained above.  If you bought a house for $200,000 and sold it for $440,000, you would have profited by $240,000, but you pay no taxes on that.  And if you do owe any taxes on a sale, it will be only on the small portion of the gain that's above the exclusion amount, and even then the long-term capital gains tax rate is usually only 15%.

Note that if you rolled the closing costs into the mortgage, then some of the "principal" portion of your mortgage payments goes to pay for those closing costs and doesn't actually build any equity.  Therefore the Paid Equity will be a little less than Down Payment + Payment - Interest.



Rent, Total Rent

Rent gets more expensive each year with inflation, and the calculator accounts for that. To change the default inflation rate, click the Deluxe tab.

The Total Rent column is the running balance -- it's the sum of all rent paid up until that point.

Return on Investment (ROI)

Some people take the money saved by renting instead of buying and invest it (e.g., into mutual funds). If you're not buying a house, you should certainly invest in something, otherwise you have no investment.

The Return on Investment listed is just that -- the return on the investment. That is, it doesn't include the principal of the investment itself. We compare apples to apples for renting vs. buying because on both sides we consider only the return generated and not the principal. We do this on the renting side by listing only the return, and never counting the principal we paid in. We do this on the buying side by figuring the principal we paid in, but then subtracting it out again.

The ROI column is the return of your investment to date (not the value for just that particular year). The amount invested each year is the "Cash Out" for that year minus the Rent paid. The return on investments is set by the "Interest on investments" field in the calculator, with a default of 5.5%. The Investment value shown is after taxes are taken out, according to the "Capital Gains tax rate" field in the calculator, with a default of 15%.

(By the way, for simplicity the calculator assumes that all the savings from renting instead of buying is invested at the beginning of the year, even though the savings actually occurs throughout the year. The difference is negligible and I don't consider this an error for the purposes of claiming the "Find A Bug in the Calculator" prize.)


Rent vs. Buy Conclusion

Buying Net

At long last we can finally start to really compare renting vs. buying. Whew.

The "Buying Net" column is how much you're out after considering the value you've built. It's total amount of cash you put out for everything (down payment, mortgage payments, taxes, insurance, maintenance), adding back any tax benefit you got, less the net value of the home (appreciated value, less any commissions and taxes on the sale, less any outstanding loan balance). Since this figure is how much you're "out", the lower the better. Negative values are especially good, because they mean you basically lived for free -- you got more value from your home through appreciation than what you paid out to buy it.  This usually happens only when the appreciation rate is at least 1.5 percentage points higher than the general inflation rate.

Renting Net

"Rent Net" is how much you're out after considering the value you've built. It's everything you've spent on rent, minus the value of your investment (after subtracting out taxes you'd owe on the sale). If you're not investing as a renter, your net would be even higher than what's shown here.

Since this figure is how much you're "out", the lower the better.  Negative values are especially good, because they mean you basically lived for free -- you got more in return from your investments than what you paid out in rent.

Rent vs. Buy

At long last, this column shows whether buying or renting is better. Negative values mean renting is a better deal, positive values mean buying is better. Almost all scenarios start off with renting being a better deal (because there are some big upfront costs when you buy a house), but after some number of years buying becomes a better deal. Years in which renting is better are shaded in pink, and years in which buying is better are shaded in green.

We get the value by comparing the "Buying Net" with the "Renting Net". That is, we compare how much you're "out" in each case. The smaller the figure, the less you're out, so the side with the lower figure wins. If one side is negative and the other is not, the negative side wins, because that's the side that's lower.

With certain sets of assumptions, we see the curious case in which renting is better at first (pink), then buying becomes better (green), then renting becomes better again (pink).* There's no real mystery here, it's just that it takes time for some variables to catch up to other variables.  If you start walking to Chicago, and then an hour later someone else starts on a bicycle from the same point,  eventually they're going to pass you, but it'll take a while.  Likewise, if two hours later someone starts from the same point on a motorcycle, then eventually they'll pass the bicyclist.

In the case below*, renting is better at first because of the higher costs of buying, including that the interest paid on the loan is high and is essentially "thrown away".  By year 15, the amount paid on interest has gone way down, and the buyer is enjoying the fact that their loan payment hasn't gone up, while the renter has suffered from rent inflation every year.  So buying becomes a better deal.  But here comes the motorcycle!  The renter's investment is growing faster than the buyer's, since the return on investment is higher than the appreciation on the house (5.75% vs. 3.5%).  So it's only a matter of time before the renter's investment grows larger than the buyer's.  For most scenarios, that will never happen in the buyer's lifetime, but in the case below*, it can.

* For example: $200k house, 5% down, 30-year mortgage, 5.5% interest, 3.5% appreciation, 6.5% costs of sale, 25% marginal tax bracket, $1000 rent, 7% return on investments.

Why this calculator is the best around

(I haven't updated this section since 2009; might be inaccurate now.)


NY Times Yahoo Motley Fool Smart Money

Most important features

Includes sample values so you can see a comparison right away    

Automatically calculates PMI, closing costs, taxes & insurance, and maintenance based on the purchase price


Automatically recalculates when you change any value


All input and results are shown the same page


Shows you the results year-by-year (not just at the end of the mortgage term)


Shows the value for 18 separate variables, for every single year


Shows results for 40 years into the future


Built-in help for every input field


Entering values

Sample values already filled in for all necessary fields


Sample values are realistic


Can see all variables at the same time (i.e., when you're viewing something, it doesn't hide something else)


Allows you to specify the % down payment (vs. a raw amount)


Allows closing costs to be rolled into mortgage or not


Allows closing costs, taxes, insurance, and maintenance to be entered in raw dollars (vs. percent)


% sign is on the wrong side of the fields


Forces you to decide how long you expect to stay in the home before you can even see any results


Too stupid to strip out a $ sign or comma that you might accidentally enter into a field

Forces you to explicitly enter a value for every field even if the value could be zero



Refuses to accept 0 as a valid entry for fields where that should be okay (e.g., Renter's Insurance)




Automatically recalculates when any value is changed


Shows you the down payment amount based on the % down payment


Automatically calculates the amount of the loan


Estimates closing costs for you


Automatically estimates the cost of taxes


Automatically estimates the cost of insurance


Automatically estimates the cost of maintenance



Can see all variables and results at the same time


Shows rent vs. buy results side-by-side


Shows numerical details at end of mortgage automatically after calculating


"Shows its work"


Results are clear and unambiguous


Results are detailed


Lets you do another comparison on the same page (i.e., doesn't force you to use the Back button to try another scenario)



Accounts for closing costs


Accounts for initial maintenance


Shows a table with the values of each of 18 separate variables for every single year


Calculates 40 years into the future



Loads instantly


Detailed explanations of each field



All text is searchable


Rollover help included for each field


Other inline help included for each field


Inline help is an annoying popup window which you're forced to close when you're done


Spawns an annoying popup window to run the calculator



Renting compared to buying

Renting Buying
What You Pay For
(and possibly renter's insurance)

* Down Payment
* Closing Costs

For 15-30 years
* Mortgage Payment
 (principal + interest)

* Taxes
* Insurance
* Maintenance

What You Can Deduct on your Taxes
(in the U.S.) (footnote)

* Interest on mortgage, PMI, and property taxes (only if you itemize on Schedule A instead of taking the Standard Deduction)
* If it's rental property, you can also deduct insurance, maintenance, and depreciation on the portion rented, whether or not you itemize. If it's a duplex and you live in half and rent the other half, you can deduct half of these costs.
* When you sell your home, you don't have to pay any taxes on the gain, in most cases. Whoa!

How you can build an investment

Take the money you would have spent on a down payment for a house and on high monthly mortgage payments, and invest in something else instead, such as a socially-responsible mutual fund. However, this is rarely as profitable as buying a home.

Your house is your investment. Part of each monthly payment builds equity in your home. Your house also gets more valuable over time just by sitting there, which is called appreciation. There are three ways you can capitalize on this investment:

(1) Sell your home, even before it's paid off, and receive the equity you built.

(2) No longer have to make mortgage payments once the loan is paid off.

(3) Any time after you're 62, get a reverse mortgage, which pays you most of the equity you've built in cash, either as a lump-sum or as monthly payments. You don't have to repay this as long as you live in your home, your heirs do. (They can either sell the house to pay off the reverse mortgage, or move into the house and start making monthly payments.)

How you could screw up this investment

Fail to invest your extra money somewhere else. In that case, you have no investment.

Possible mistakes include:

  • Paying more than the house is worth
  • Paying more than you can afford (in which case you could lose the house by failing to make payments)
  • Paying too much interest, by getting an ARM mortgage with unfavorable terms, or failing to refinance a FRM when rates drop.

* Simple
* Start investing right away, without having to save for a down payment
* Easier to move if you decide to relocate, or if you don't like your neighbors or neighborhood
* No cost or effort spent on maintenance
* If your rent is low enough, this could be a better investment than house-buying.

* Pride and satisfaction in owning your own home.
* Ability to customize the home exactly how you want.
* Money that you pay towards the principal on your loan each month increases the % of your home that you own. In effect, you're paying yourself.
* Mortgage payment stays the same over 30 years. If you were a renter, your rent would definitely go up.
* If you itemize deductions, you can deduct the interest you pay on your mortgage.
* You leverage your investment by buying the home with (mostly) the bank's money. You might put only 10% down, but your whole house (all 100%) of it appreciates every year. If you put $10k down on a $100k house, the whole $100k appreciates, not just the $10k you put down.
* When (if) you sell your home, you don't have to pay any income tax on the gain. Whoa!

A side note about the unfairness of tax breaks: Many first-time home buyers are excited to discover that they can deduct mortgage interest from their taxes. While this benefit is very real, it's worth noting that this tax "break" is in fact a scheme to shift to lower taxes disproportionately for the rich.  There are two reasons:

  1. Poor people who have to pay rent don't get this break. They can't deduct their rent on their tax returns.
  2. Wealthier people have much more expensive homes, so their tax savings on mortgage interest is phenomenal. This deduction actually winds up costing middle-class homeowners, because they're paying higher standard tax rates as a result of the wealthy getting a real estate deduction that's worth a lot more to them.

Here is a telling passage from Take the Rich off Welfare:

"The National Housing Institute calculates that [the mortgage interest] deduction cost the Treasury slightly more than $58 billion in 1995, and that half that total -- $29 billion -- went to people with incomes over $100,000. (In comparison, the entire 1995 budget for HUD, the Department of Housing and Urban Development, was $26 billion.) ... [M]iddle-class homeowners think they're the ones getting the deal. If you believe that, you're being had. It's a classic case of being tossed a few scraps from the table. If we simply eliminate all the handouts and boondoggles [like this one], our tax rates would drop so far, so fast, that special little deals like these homeowners' loopholes would seem archaic and silly." [pp. 52-56; emphasis added]

Same deal with the fact that you pay no tax on the gain when you sell your home. The wealthy have much more expensive homes, so they're the ones reaping the lion's share of the no-tax-on-the-sale rule. (Actually, rich people do have to pay taxes on gains above $250,000, or $500,000 for married couples, but that's still a LOT of gain that they get tax-free.)

Those who think the above is an indictment on being rich should read more carefully.  Nothing above says that it's bad for some people to have more money than others (as some of my critics think I'm saying).  The problem is the mortgage interest deduction is a way for those who have more to get a tax break at the expense of everyone else.  That simply goes against the basic concept of fairness.

Here's a CNN editorial which says the same thing.

Thanks to The Legal Dollar for pointing out that property taxes are deductible from federal taxes. The calculator now includes this.

If you liked this site then you might like some of my other sites:

How to Find Cheap Airfare     How to Save Electricity     Slot machines demystified

Entire site ©1999-2023 Michael Bluejay Inc. • All information is "use at your own risk"   Contact