Rent vs Buy Calculator

What This Calculator Does

The Rent vs Buy Calculator is designed to help you make an informed decision about whether renting or buying a home is better for you financially. By considering key variables such as home price, rent, taxes, and appreciation, this tool provides an in-depth comparison of the long-term costs and projected savings of each option. Use this calculator to quickly evaluate your potential financial outcomes and plan your next move with confidence.

How to Use This Calculator

1. Enter the Home Price: Input the price of the home you are considering purchasing.
2. Specify the Down Payment: Indicate how much you plan to put down upfront on the home.
3. Set the Mortgage Rate and Term: Provide your anticipated mortgage interest rate and the duration of your loan (for example, 30 years).
4. Add Monthly Property Tax and Home Insurance: Enter your expected monthly property tax and home insurance costs for ownership.
5. Estimate Annual Home Appreciation: Provide your best estimate of how much the home's value may increase each year.
6. Input Monthly Rent and Rental Insurance: Enter the current rent for a comparable property and the monthly cost of rental insurance.
7. Include Annual Rent Increase: Specify the percentage by which you expect rent to rise each year.
8. State How Many Years You Plan to Stay: Enter the number of years you expect to live in the home or rent.
9. Review Your Results: After entering your details, review the calculator's breakdown of projected savings, total costs, and monthly payments for both renting and buying.
10. Compare and Decide: Use the results to compare your options, considering your lifestyle, finances, and future plans.

Definitions of Key Terms

Home Price

The total price of the property you are considering buying. This is the starting point for all home purchase calculations.

Down Payment

The initial amount paid upfront when purchasing a home, usually expressed as a percentage of the home price (for example, 20 percent).

Mortgage Rate

The annual interest rate charged by your lender for the mortgage loan. This rate significantly impacts your monthly payments and total interest paid.

Mortgage Term

The length of your mortgage loan, typically measured in years (such as 15 or 30 years).

Monthly Property Tax

The estimated monthly amount you will pay in property taxes as a homeowner.

Monthly Home Insurance

The estimated monthly premium for insuring your home against risks like fire, theft, and natural disasters.

Annual Home Appreciation

The expected yearly percentage increase in your home's value. This factor affects the resale value and equity growth over time.

Monthly Rent

The current monthly amount you would pay to rent a comparable home in your area.

Monthly Rental Insurance

The monthly cost of insuring your personal belongings in a rental property.

Annual Rent Increase

The anticipated yearly percentage increase in rent. This helps estimate how your rental costs may rise over time.

Years You Plan to Stay

The number of years you expect to remain in the home or rental property. This affects long-term cost projections.

Projected Savings

The estimated difference in total costs between renting and buying over your selected time frame. A positive number indicates savings from buying; a negative number suggests renting is less expensive.

Total Cost

The sum of all expenses associated with either renting or buying over the chosen period, including payments, taxes, insurance, and opportunity costs.

Monthly Payment

The average monthly payment required for either renting or owning, factoring in all recurring costs.

Calculation Methodology

Calculate total cost of buying:
  Calculate mortgage principal = Home Price - Down Payment
  Calculate monthly mortgage payment using rate and term
  Add monthly property tax and home insurance to mortgage payment
  Calculate total payments over years you plan to stay
  Estimate home value at end using annual home appreciation
  Subtract estimated home value at sale (minus selling costs) from total payments to get net cost of buying

Calculate total cost of renting:
  Calculate initial monthly rent
  Increase rent annually by the specified rent increase percentage
  Add monthly rental insurance to rent
  Sum all rent and insurance payments over the years you plan to rent

Calculate projected savings:
  Projected Savings = Total Cost of Renting - Total Cost of Buying

Calculate monthly payments:
  Buying: Average monthly payment = (Total cost of buying) / (years * 12)
  Renting: Average monthly payment = (Total cost of renting) / (years * 12)

Practical Scenarios

• Recent Graduate Relocating for Work: You have just started your career in a new city and are unsure how long you will stay. Use the calculator to compare the costs of renting an apartment versus buying a starter home for a short-term stay.
• Growing Family Seeking Stability: Your family is expanding, and you are debating whether to rent a larger place or invest in a home. Input your data to see if buying provides long-term savings compared to rising rents.
• Retiree Downsizing: You are considering selling your current home and renting or buying a smaller property. Use the calculator to understand the financial implications of downsizing and how home appreciation might benefit you.
• Remote Worker Considering Relocation: With more flexibility to move, you want to compare the cost of buying a home in an affordable city versus renting to maintain flexibility. The calculator helps clarify which option aligns with your financial goals.

Advanced Tips & Best Practices

• Consider including opportunity cost for your down payment, such as potential investment returns if you rented instead of buying.
• Adjust your home appreciation rate conservatively, as real estate markets can fluctuate and past performance does not guarantee future returns.
• Factor in additional ownership expenses like maintenance, repairs, and homeowners association (HOA) fees, even if the calculator does not explicitly ask for them.
• Use local data for property taxes and insurance to ensure your calculations reflect your specific area, as these costs can vary widely.
• Run multiple scenarios with different mortgage rates and rent increases to see how changes in market conditions impact the results.

Frequently Asked Questions (Optional)

Does this calculator account for closing costs or maintenance?

The calculator focuses on the major recurring costs but does not automatically include closing costs, maintenance, or HOA fees. For a more complete analysis, you may want to estimate these and add them to your calculations.

How accurate are the projected savings?

The calculator provides estimates based on the inputs you provide. Market fluctuations, unexpected expenses, and personal circumstances can affect actual results. Use the tool as a guide and consult a financial advisor for personalized advice.

What if I sell my home before the mortgage term ends?

The calculator factors in your chosen stay duration and estimates your home’s value at the end of your stay. Any remaining mortgage balance and potential selling costs are considered in the calculation of total costs for buying.