Rent vs Buy Calculator

Buying a home is often described as the obvious step and renting as throwing money away. Neither is automatically true. Owning ties up capital in a down payment, charges interest and upkeep, and costs money to buy and to sell; renting gives you flexibility and leaves your savings to earn a return elsewhere. Which wins depends on prices, rents and rates, so the honest approach is to put your own numbers in and compare the outcomes.

What the model compares

Both paths start with the same money. The buyer puts down a percentage of the price, pays buying costs and takes a loan. Each month the buyer pays the loan instalment plus a monthly share of property tax, maintenance and insurance, all taken as percentages of the home’s value for that year. The renter pays rent, which rises every year, and invests the down payment and buying costs on day one. In any month the person who spends less invests the difference, at the same return.

A worked example

The defaults are a 75 lakh home, 20% down, 8.5% over 20 years, upkeep and tax of 1.5% a year, buying costs of 7%, price growth of 6%, rent of 25,000 rising 6% a year, an investment return of 8%, a stay of 15 years and selling costs of 3%. After 15 years the buyer’s net worth is 1,48,97,037 and the renter’s is 1,64,68,334, so renting is ahead by 15,71,297 and buying does not catch up within the stay. In year one owning costs 61,444 a month, of which 52,069 is the instalment and 9,375 upkeep, against rent of 25,000. A dollar example with a 600,000 home over 10 years has renting ahead by 177,843.

Reading the table

The table shows both net worths every year and the difference. Early on, renting leads because the buyer has paid heavy costs and little equity has built up. Over time the loan balance falls and the home appreciates, so the gap usually narrows. If the buyer’s line crosses the renter’s, the page names the year; if it does not, it says buying does not pay off within your stay. A short stay is bad for buyers because of the buying and selling costs.

What changes the answer

In the default example, raising price growth from 6 to 8 percent makes buying pull ahead from year 6, and at 9 percent from year 4; lowering the investment return from 8 to 5 percent makes buying win from year 8. A large price-to-rent ratio favours renting, while cheap loans and fast-rising prices favour buying. Try a low, a medium and a high case for price growth in particular, because it is the least certain input, and note how wide the range of outcomes is.

Edge cases

If the rent exceeds the owner’s cost in a month, the owner invests the difference, which the model handles. Selling costs apply only at the end. A down payment of 100 percent is allowed and leaves no loan. The mortgage term can be shorter than the stay, in which case the owner has no instalment in the later years and invests that money instead.

Limits

Tax relief on home loan interest, which varies by country, is not included, nor are moving costs or the value of living in a place you can modify. Returns, rents and prices are constants. The result compares money only; stability, space and the freedom to move matter too.

Related tools

• Mortgage Calculator gives the full payment schedule for the loan used here.
• Refinance Calculator tests whether switching a loan later would change the outcome.
• Rental Yield Calculator turns the rent-to-price relationship into a yield.
• Net Worth Calculator tracks how either path builds your wealth in practice.