#Why comparing rent to a mortgage payment is meaningless
The single most common error in this decision is placing a monthly rent figure next to a monthly mortgage payment and concluding that buying is cheaper. That comparison omits four things, all of which favour renting:
- Property tax, insurance and HOA — typically 1.3% to 2.5% of home value annually
- Maintenance — roofs, HVAC, water heaters and exterior work, conventionally budgeted at 1% of value per year
- Transaction costs — roughly 8% to 10% round trip once agent commissions, closing costs and transfer taxes are included
- Opportunity cost of the down payment — a $90,000 deposit invested at 7% compounds to over $177,000 in ten years
This calculator tracks total net worth under both paths across thirty years. The buyer accumulates home equity net of selling costs; the renter accumulates an investment portfolio seeded with the cash they did not spend on a deposit and topped up whenever owning costs more than renting.
#Reading the break-even year
The break-even year is the point at which the buyer's net worth overtakes the renter's. Under typical US assumptions it lands between five and eight years. In expensive coastal markets where price-to-rent ratios exceed 25, it can exceed twelve years or never arrive at all.
If you might move before the break-even year, rent. Job changes, relationships, and school decisions all move faster than real estate transaction costs can be recovered. Buying with a three-year horizon is close to a guaranteed loss once you pay to get in and out.
#The assumptions that move the answer most
Home appreciation. Long-run US real house price growth is far lower than most people assume — closer to 1% above inflation than the 6% to 8% often quoted from bubble periods. Setting this to 6% will make buying look wonderful; it is not a defensible planning assumption over thirty years.
Investment return. The renter's alternative matters. If the down payment sits in a checking account earning nothing, buying wins easily. The model assumes the renter actually invests it, which is the honest comparison but requires discipline most renters do not exercise. If you know you will spend it, buying's forced-savings effect is a genuine advantage the spreadsheet cannot capture.
Maintenance. Setting this to zero produces a comparison that will not survive contact with a failed HVAC system. One percent of value annually is the standard planning figure; homes over forty years old justify 1.5% or more.
Rent growth. Rent rising 3.5% a year doubles in twenty years. This is the strongest structural argument for buying: a fixed-rate mortgage payment is frozen in nominal terms while rent compounds indefinitely.
#The mortgage interest deduction is probably worth nothing to you
Since the 2017 standard deduction increase, the large majority of US filers no longer itemise. If you take the standard deduction, your mortgage interest produces exactly zero tax benefit. Leave the tax benefit input at zero unless you have confirmed with your accountant that you itemise and calculated the marginal benefit above the standard deduction — not the gross interest paid.
#What the model deliberately excludes
- Imputed rent and security of tenure. Owning means nobody can decline to renew your lease. That has real value this model does not price.
- Leverage. A 20% deposit gives you 5× exposure to the housing market. In a rising market that magnifies gains; in a falling one it magnifies losses just as effectively.
- Flexibility. Renting lets you take a job in another city next month. That optionality is worth a great deal early in a career.
- Stress and time. Being your own building superintendent is a real cost that no calculator captures.
#How to use the output
Run the model with honest, conservative assumptions first. Then run it again with pessimistic ones — 2% appreciation, 1.5% maintenance, 10% transaction costs. If buying still wins inside your realistic time horizon, it is a robust decision. If it only wins under optimistic assumptions, you are betting on the market rather than buying a home.
If you are already a homeowner and simply want to know whether to refinance, use the mortgage refinance calculator instead.