Rent versus buy is a wealth question, not a monthly-payment contest. Buying builds equity. Renting keeps the down payment invested and can invest the gap whenever rent is cheaper than owning. After selling costs, one of those paths is ahead. Which one depends on how long you stay and what the money you did not spend would have earned.
Owning costs more than the mortgage
Each month the owner pays principal and interest, property tax, insurance, maintenance, and HOA. Insurance is fixed in this model at $1,900 a year and HOA is zero. Tax and maintenance scale with the home value, so they rise if the house appreciates.
The monthly owning cost on the result is that full stack, not the loan payment alone. A house can look cheaper than rent on principal and interest and still cost more once tax, insurance, and upkeep are in the bill.
The comparison is a model, not a forecast
Home prices, rents, and investment returns will not arrive in a smooth line. The chart is a way to see which assumptions the decision depends on. Stretch the stay, change appreciation, or change the investment return and watch which path finishes ahead.
The mortgage interest deduction is not included. Many owners take the standard deduction and get no extra benefit. A payment you can keep, in a place you want to live, can be worth more than a small wealth gap. The calculator will not measure that. It will measure the money.
How to use the rent vs buy calculator
Buying builds home equity. Renting keeps the down payment and closing costs invested, and invests the monthly gap whenever rent is cheaper than owning. The result is the difference in wealth after you sell the home and pay selling costs. A cheaper monthly rent can still lose if the home appreciates enough, and buying can lose if you sell soon or the investments you skipped would have grown faster.
- Enter the home price, down payment, mortgage rate, and how long you expect to stay.
- Enter the rent you would pay instead, and how fast you think rent and home prices rise.
- Set the return you could earn by investing money you do not spend on the house.
- Read which path has more wealth at the end of the stay, not only which one has the lower monthly bill.
How the math works
The cost of owning
Each month the owner pays principal and interest, property tax, insurance, maintenance, and HOA. Insurance is fixed at $1,900 a year and HOA is $0. Tax and maintenance scale with the home value.
The renter’s invested cash
The renter starts with the buyer’s down payment and closing costs invested. Each month, whoever pays less invests the difference at the return you set. Rent rises once a year at the growth rate.
Selling at the end
The buyer’s wealth is the invested monthly surplus plus the home value, minus the remaining mortgage and 6% selling costs. That keeps a paper gain from looking like cash you can spend.
A $520,000 home versus $2,800 rent, for 7 years
The defaults use 20% down, a 6.35% mortgage, 3% appreciation, 3% rent growth, and a 6% return on invested cash. Closing costs are 2% of the price.
Owning starts near $3,679 a month, above the $2,800 rent. After 7 years the renter’s invested cash is about $248,000 and the buyer’s wealth after selling costs is about $226,000. Renting finishes ahead by about $22,000 on these assumptions.
Terms worth knowing
- Opportunity cost
- The return you give up by putting cash into a down payment instead of an investment.
- Equity
- Home value minus the mortgage you still owe. Selling costs reduce what you keep.
- Appreciation
- The annual rise in the home’s value. It is an assumption you can change, not a forecast.
- Maintenance
- A percent of the home value set aside each year for repairs and upkeep.
What to do with the number
Stretch the stay. Buying looks worse when selling costs hit after only a few years.
If you would not actually invest the difference, lower the investment return. The renter’s advantage shrinks.
A stable housing payment can still be worth more to you than a small wealth gap. The chart does not measure that.
Property tax and maintenance are editable because they change the result as much as the mortgage rate.
Questions people ask
What this leaves out
Homeowners insurance is $1,900 a year and HOA dues are $0.
Closing costs are 2% of the price. Selling costs are 6%.
The mortgage rate is fixed. Extra principal payments are not included.
Investment returns are steady. Real markets are not.
These figures are estimates to help you understand the tradeoff. They are not tax, legal, insurance, or investment advice. A fiduciary can look at the same numbers in the context of the rest of your plan.