How do the modelled costs of renting and buying compare over the same years?
Rent-versus-buy compares cumulative rent with a simplified ownership cost after accounting for mortgage payments, upkeep and the equity remaining in the home. The output is sensitive to assumptions rather than a universal answer.
Cumulative rent versus ownership cost less equity
Renting: sum of 12 monthly payments each year, with rent growing by the yearly increase.Owning: Down payment + Mortgage paid + Upkeep − Equity Equity = Home value at the end − Remaining mortgage Home value = Price × (1 + Appreciation)^YearsDifference = Cost of renting − Cost of owning.A 30 year mortgage is assumed.A shorter comparison inside a 30-year mortgage
The default case grows rent annually and models ownership with a 30-year mortgage, entered down payment, upkeep rate and home appreciation over the selected comparison period.
Illustrative inputs; currency amounts below use USD. Rates and prices are assumptions, not live quotes.
- Monthly rent
- $1,400.00
- Rent increase per year
- 4%
- Home price
- $320,000.00
- Down payment
- 20%
- Mortgage rate
- 5.5%
- Yearly upkeep, tax and insurance
- 1.8%
- Home appreciation per year
- 3%
- Years
- 10
Step-by-step calculation
- First-year rent = 1,400 × 12. Increase annual rent by 4% each year for 10 years to get total rent 201,702.599666.
- Down payment = 320,000 × 20%. Finance the remainder over 30 years at 5.5%; monthly principal and interest = 1,453.539843.
- At year 10, modelled home value is 430,053.24139 and equity is 218,748.304253. Down payment + mortgage paid + upkeep − equity = ownership cost 77,276.476961.
- Difference = rent 201,702.599666 − ownership cost 77,276.476961 = 124,426.122705. Positive favours owning under these assumptions; transaction costs and investment opportunity cost are excluded.
Intermediate figures are rounded for reading. Results use the full calculation precision.
How equity changes the cost comparison
The difference is renting cost minus owning cost under the formula, so its sign must be read with the output label. Equity reduces the modelled net cost of owning because it remains an asset at the end.
Opportunity costs and transaction charges omitted
The model does not include every opportunity cost or transaction charge. A high appreciation assumption can make modelled ownership cost negative after equity, which reflects the formula rather than cash received.
- The mortgage term is 30 years, even when the comparison period is shorter.
- Rent growth, appreciation and ownership-cost rates remain constant.
- Closing costs, selling costs, investment return on the down payment and tax effects are excluded.
Calculations related to rent vs buy
The following tools examine neighbouring parts of the same calculation without changing the inputs or assumptions used above.
References
Sources and conventions
- CFPB: loan amortisation
Explains how payments are split between interest and principal; actual agreements may use different timing or fees.
- CFPB: budgeting for a home
Identifies costs to consider. This site's comparison fixes a 30-year mortgage and excludes transaction costs and investment opportunity cost.
Quick answers
Frequently asked questions
What mortgage term does the rent-vs-buy calculator assume?
It assumes a 30-year mortgage regardless of the comparison period entered.
How is home equity calculated?
Projected home value at the end of the period minus the remaining mortgage balance.
Are maintenance, property tax and insurance included?
They are represented together by the entered annual ownership-cost percentage.
Does the comparison include buying and selling closing costs?
No. Transaction costs, tax deductions, opportunity cost and selling fees are not part of the stated formula.
Calculation method and limitations · Report an error
Educational content only. This guide is not financial advice.