How this calculation works
Compare buying and renting over an entered horizon using a mortgage ledger, sale costs and investment of monthly savings under an equal budget. Buyer end wealth = home sale value − selling costs − loan balance + invested savings; renter wealth = invested initial cash and monthly savings
Buyer end wealth = home sale value − selling costs − loan balance + invested savings; renter wealth = invested initial cash and monthly savingsA worked example
At a price of 120,000, 20% down, a zero-rate ten-year loan and rent of 800 per month, the first-year difference is 9,600 in favor of buying when every other rate and cost is zero. This deliberately simplified case isolates principal repayment.
Good to know
Entered scenarios only, not a prediction or purchase recommendation. Equal initial cash and monthly budgets; end-month savings invested at an effective monthly rate. Excludes tax deductions, mortgage insurance, deposits, moving costs, inflation and investment fees. Insurance is fixed; tax and maintenance scale with modeled home value. Use one consistent money unit.
Reference: CFPB home purchase decision costs (opens in a new tab) ↗
Equity is not the same thing as money spent
A mortgage payment contains both interest and principal. Interest is a financing cost; principal reduces a debt and therefore changes equity. Comparing rent with the whole mortgage payment as though both disappear would miss that distinction.
This model follows the debt month by month. At each year end it estimates a sale, subtracts selling costs and the remaining loan balance, then adds any invested savings. A buyer can finish with negative sale equity; that number is retained rather than clipped to zero.
Give the renter the same starting cash
The down payment and purchase closing costs have an alternative use. Here the renter invests the same amount at the beginning of the comparison. It is not silently treated as free money for the buyer or ignored for the renter.
For each month, the common budget equals whichever path costs more. The lower-cost path invests the difference at month end. This means the comparison does not assume that one household has a larger income. It also assumes the monthly saving is actually invested.
Keep growth rates attached to the right quantity
Rent changes at each anniversary. Home value changes smoothly at the entered effective annual rate, and property tax and maintenance follow that value. Insurance remains the fixed annual amount you enter.
The investment input is an effective annual return converted into a monthly factor. The mortgage input is a nominal annual rate divided by twelve. Those conventions differ intentionally; confusing them changes the result.
Test a short stay before a long stay
Transaction costs are paid even when the holding period is short. Purchase costs leave the buyer at the beginning, and sale costs reduce the final home proceeds. A rising home price does not guarantee a positive advantage after those costs.
Compare the zero-cost example with a case that includes purchase and selling percentages. Then vary the horizon without changing every assumption simultaneously. The yearly table is a scenario comparison, not proof of a universal break-even year.
Use the next calculation for the next question
The EMI and fixed loan payment calculator examines the loan payment itself. The rental deposit opportunity cost comparison calculator examines a refundable deposit, which this model deliberately omits.
The loan refinance cost comparison calculator answers a later financing decision. Neighborhood quality, flexibility, repair uncertainty and the ability to fund a down payment matter even when they cannot be summarized by one calculated difference.
A few questions, answered
Does this tell me whether to buy?
No. It compares entered assumptions under equal initial cash and monthly budgets. Personal constraints and risks are outside the model.
Is the down payment treated as a lost cost?
No. It reduces the buyer’s loan and remains reflected in home equity. The renter invests the same initial cash in the comparison.
Why can the renter have more wealth?
Investment of initial cash and monthly savings can outweigh sale equity under some assumptions. Neither result predicts future markets.