This page explains every assumption, formula, and deliberate omission behind the Rent vs Buy Calculator. The goal is simple: no black box. If you can replicate our numbers in a spreadsheet, we've done our job.
This calculator uses a net-worth comparison — not a simple "monthly payment vs rent" comparison. Each year, we compute two numbers:
Break-even is the first year the buyer's net worth exceeds the renter's portfolio. Before that year, the renter is ahead. After it, the buyer pulls ahead and the lead typically widens.
Most calculators compare monthly payments. We compare wealth. The difference is substantial — especially in the first decade, when mortgage payments are mostly interest and a renter's invested down payment is compounding.
| Cost item | Default | Notes |
|---|---|---|
| Mortgage P&I | Calculated | Standard 30-year amortization formula (see below) |
| Property tax | 1.1% / yr | Applied to current home value; ranges 0.5%–2.2% by state |
| Homeowner's insurance | 0.5% / yr | Fixed rate applied to home value |
| Maintenance | 1.0% / yr | Industry standard estimate; applied to home value |
| PMI | 0.8% / yr | Only when down payment < 20%; removable on request at 80% LTV; auto-cancelled at 78% |
The monthly mortgage payment (principal + interest) uses the standard amortization formula:
| Cost item | Default | Notes |
|---|---|---|
| Closing costs (buy) | 2.5% of price | Deducted from renter's starting investment principal |
| Selling costs (sell) | 6.0% of price | Conservative all-in estimate including transfer taxes; commissions are negotiable post-2024 NAR settlement |
This is where most calculators fail — they assume the renter does nothing with the money they save. We don't.
The catch: this model only holds if the renter actually invests the difference, every month, for years. A mortgage is forced savings. An investment plan you maintain by willpower often isn't. That behavioral advantage is a real — if unglamorous — point in buying's favor.
This section is the most important on this page. Knowing what a model leaves out is as important as knowing what it includes.
Home value grows at the user-chosen appreciation rate (default: 3% per year), and this appreciation is included in the buyer's equity calculation. We include it because it is a real economic factor — but we set the default conservatively. Many calculators with sales motives default to 4–5% appreciation, which makes almost any purchase look like an obvious win. At 3%, buying still reaches break-even at year 12 with our defaults. Raise appreciation to 5% and break-even moves to around year 7; lower it to 0% and it stretches past year 20. Appreciation is the single variable with the most uncertainty and the most potential for manipulation — which is exactly why we make it visible, adjustable, and default it low.
Under current law, the standard deduction ($16,100 single / $32,200 married in 2026) is high enough that most homeowners no longer itemize. Counting a mortgage interest deduction would overstate buying's advantage for the majority of users.
All figures are in nominal (current) dollars. We do not inflation-adjust the comparison. This is consistent with how most people experience their finances month to month.
This calculator uses national defaults. It does not model local rent control, zoning constraints, regional price cycles, or state-specific tax rules. Always verify property tax rates for your specific location — they vary from under 0.5% (Hawaii) to over 2% (New Jersey, Illinois).
| Default value | Source |
|---|---|
| 6.5% mortgage rate | Freddie Mac Primary Mortgage Market Survey — 2026 average |
| 6% selling costs | NAR — typical agent commission + transfer taxes |
| 2.5% closing costs | CFPB — typical buyer closing cost range |
| 1.1% property tax | U.S. Census Bureau — national median effective rate |
| 1.0% maintenance | Industry standard rule of thumb (1% of home value per year) |
| 4% investment return | Conservative estimate; long-run U.S. stock market nominal average ~10% (~7% after inflation) |
| 3% rent inflation | Historical U.S. rent growth average |
| 3% home appreciation | Historical U.S. home price appreciation average (Case-Shiller) |
Using default parameters: $400,000 home · 20% down · 6.5% rate · 4% investment return · 3% rent inflation · 3% appreciation
| Item | Buyer | Renter |
|---|---|---|
| Down payment | −$80,000 | +$80,000 invested |
| Closing costs (2.5%) | −$10,000 | (not paid — counted as additional renter investment) |
| Loan amount | $320,000 | — |
| Cost item | Buyer / month | Renter / month |
|---|---|---|
| Mortgage P&I | $2,023 | — |
| Property tax (1.1%) | $367 | — |
| Insurance (0.5%) | $167 | $20 (renters) |
| Maintenance (1.0%) | $333 | — |
| Rent | — | $2,000 |
| Total | $2,890 | $2,020 |
Monthly gap in year 1: $869 more to buy. The renter invests this $869 each month on top of the $90,000 already invested.
| Item | Buyer | Renter |
|---|---|---|
| Home value (3%/yr) | ~$569,000 | — |
| Remaining loan balance | ~$257,000 | — |
| Selling costs (6%) | −~$34,000 | — |
| Buyer net equity | ~$279,000 | — |
| Investment portfolio (4%/yr) | — | ~$265,000 |
| Renter net worth | — | ~$274,000 |
At year 12, buyer equity (~$268k) first exceeds renter portfolio (~$265k) — this is the break-even point. After this, the buyer's advantage grows as the mortgage balance shrinks and the fixed payment becomes increasingly cheap relative to rising rents.
This is an educational tool, not financial advice. Results are highly sensitive to the assumptions you choose — especially the investment return and home appreciation rate. We strongly recommend testing multiple parameter combinations rather than relying on a single output. Consult a licensed financial advisor before making major housing decisions.