What Is a Rent or Buy Analysis?
Should you keep renting or buy a home? Comparing the monthly rent with the monthly mortgage payment is misleading, because owning brings other costs, such as property tax, insurance and repairs, and also gives money back: part of each payment pays down your loan, mortgage interest and property tax can lower your income tax, and the home may rise in value. A rent or buy analysis adds all of these up for one year, so you can see which option really costs less.
Renting vs buying at a glance
- Renting: low upfront cost (usually a security deposit), predictable payments, and the freedom to move. The landlord pays for repairs. But rent can go up, and you build no ownership.
- Buying: a down payment and closing costs up front, plus property tax, insurance and maintenance. In return you build equity as you pay down the loan, may get tax deductions, and gain if the home rises in value.
- How long you stay matters: closing costs and the cost of selling are spread over the years you own the home. If you might move within a few years, renting often comes out ahead.
To see the full cost of the home over the whole loan, use the Mortgage calculator.
How the Calculator Compares Them
There is no single standard formula for rent or buy, so the calculator adds up one year of each. Renting is the year's rent, renter's insurance, and the lost interest on your security deposit. Buying is what you pay in the first year, minus the money that comes back to you:
- Costs: 12 mortgage payments, property tax, homeowner's insurance, PMI (only when the down payment is under 20%), maintenance, and the lost interest on the down payment and closing costs.
- Principal paid off: the part of the year's payments that lowers your loan balance. It isn't really spent, because you own more of the home.
- Tax savings: the first year's mortgage interest and the property tax, times your tax rate. These count only if you itemize deductions.
- Lost interest (the opportunity cost) is what the money paid up front could have earned in a year elsewhere: the amount × your after-tax return.
Example
Rent of $2,150 a month, or a $350,000 home with $35,000 down and a 30-year mortgage at 6%:
- Renting: 12 × $2,150 = $25,800.00 + $250 insurance + $2,150 × 7% = $150.50 of lost interest = $26,200.50 a year.
- Buying, costs: 12 payments of $1,888.58 ($22,662.96) + $7,000.00 property tax + $1,750.00 insurance + $1,575.00 PMI + $2,800.00 maintenance + $3,276.88 of lost interest (7% of the $35,000 down payment plus $11,812.50 of closing costs) = $39,064.84.
- Buying, money back: $3,868.19 of principal paid off + $5,158.95 of tax savings at 20% + $7,000.00 rise in value (2%) = $16,027.14.
- Cost of buying: $39,064.84 − $16,027.14 = $23,037.70, so buying saves $3,162.80 a year. Without itemizing, buying would cost $28,196.65.
How to Use the Home Rent or Buy Calculator
"I pay $2,150 a month in rent. I could buy a $350,000 home with $35,000 down and a 6% mortgage. Which costs less?" This calculator answers that.
Let's enter the numbers for this example in each box. They are already filled in when the calculator opens, so you can follow along and then change any box to match your own situation.
Rent
- Monthly Rent: Enter 2,150, which is the rent you pay each month. It must be greater than 0.
- Renter's Insurance: Enter 250, which is what renter's insurance costs you for a year. Enter 0 if you don't have it.
- Security Deposit: Enter 2,150, which is the deposit your landlord holds and refunds when you move out.
- Return Rate: Enter 7, which is the yearly after-tax return in percent your money could earn elsewhere, for example in an index fund or Treasury bonds. It is used for the deposit and for the down payment and closing costs.
Buy
- Home Price: Enter 350,000, which is the price of the home you would buy. It must be greater than 0.
- Down Payment: Enter 35,000, which is the cash you put down. The mortgage is the price minus the down payment, and it can't be more than the price.
- Interest Rate: Enter 6, which is the mortgage's yearly interest rate in percent.
- Loan Term: Enter 30, which is the length of the mortgage in years. It must be a whole number from 1 to 50.
- Property Tax: Enter 2, which is the yearly property tax as a percent of the home price where you live.
- Home Insurance: Enter 0.5, which is the yearly homeowner's insurance as a percent of the home price.
- PMI: Leave it at 1,575, which is private mortgage insurance for a year. It fills in by itself at 0.5% of the mortgage ($350,000 − $35,000 = $315,000), and you can type your own amount if yours is different. With a down payment of 20% or more of the home price, it goes to 0 and the box is turned off.
- Maintenance: Enter 0.8, which is the yearly cost of repairs and upkeep as a percent of the home price.
- Closing Costs: Enter 3.75, which is the mortgage's closing costs as a percent of the mortgage amount.
- Appreciation: Enter 2, which is how much you expect the home's value to rise in a year, in percent.
- Tax Rate: Enter 20, which is your income tax rate in percent, used for the mortgage interest and property tax deductions.
Calculate and Reset
Click Calculate to see your results. If a box has a problem, such as a down payment bigger than the price, a message pops up under that box instead. With the default numbers you get:
- Your Results: a short summary in words: the cost of renting ($26,200.50) and of buying ($23,037.70) for a year, which one saves you money, and what changes if you don't itemize deductions.
- Savings: the headline number, $3,162.80 a year, with the cheaper option named under it.
- Cost of Renting, Cost of Buying, Monthly Rent and Monthly Mortgage Payment: the cheaper cost is highlighted.
- Bar chart: renting's costs, buying's costs, the money that comes back, and the net cost of buying, on one scale. The dashed line marks the cost of renting, so a net cost bar that ends left of it means buying is cheaper. Point at or tap a piece to see what it is.
- Rent or Buy Report: every line of the calculation, numbered, ending with the decision, with and without itemizing. Download PDF saves it as a formatted report; Download Excel saves a spreadsheet with the formulas, so you can change a number and see the totals update.
- Share Results: a link that opens this calculator with your numbers filled in. Copy it, or share it on Facebook or X.
Amounts of $1 million or more are shortened, for example $1.25M. Click Reset to put every box back to its default and show the default results again.