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Buy Versus Rent Comparison Calculator

Buy Versus Rent Calculator

Calculator developed by

Use our Buy Versus Rent Calculator to evaluate the financial tradeoffs between buying and renting a home to determine which option makes the most financial sense for you. This calculator factors in all of the expenses associated with buying a home to provide an accurate comparison of home ownership and renting. Many considerations go into determining if you should buy or rent so use this calculator to evaluate different outcomes to make an informed decision.

Watch our Buy Versus Rent Comparison Calculator "How To" video

Inputs

Buy
Rent
Monthly rent
 
Please Enter Mortgage Amount
Annual increase in rent you anticipate in future years
 
Please Select Annual Increase in Rent
The value of the property for which you are obtaining the mortgage
Please Enter Purchase Price of Property
The amount of money you are contributing to purchase the property
Please Enter Down Payment
The current interest rate for a 30 year fixed rate mortgage is approximately 3.875%
Please Select Interest Rate
The length, in years, of the mortgage. The most common mortgage term is 30 years
Please Select Mortgage Term (Years)
Number of years you plan on staying in the property you are buying
Please Select Years You Plan to Stay in Property
Expected annual increase in the value of the property you are buying
Please Select Annual Increase in Property Value
Annual taxes chaged by local governments. Property tax rates vary by county and are typically applied as a percentage of the purchase price or value of the property
Please Select Property Tax Rate
Your federal tax bracket based on your income level. You tax bracket is the highest federal tax rate you pay on your income
Please Select Federal Tax Bracket
Also known as HOA fee, all condo complexes and some housing projects charge property owners monthly fees for insurance and upkeep of the property
Please Select Monthly Homeowners Association Fee

Outputs

Buy
Rent
Rent
Buy
Comparison of the average monthly rent and monthly mortgage payment over the number of years you plan on staying in the property. Note how the monthly mortgage payment does not change because we are assuming you select a fixed rate mortgage
Comparison of the total amount of rent payments and monthly mortgage payments over the number of years you plan on staying in the property
Comparison of the average monthly rent and total monthly housing expense over the number of years you plan on staying in the property. Total monthly housing expense captures all of the monthly costs of owning a home including property taxes and insurance
Comparison of the total amount of rent payments and total monthly housing expense over the number of years you plan on staying in the property
Average monthly mortgage tax deduction benefit over the number of years you plan on staying in the property. The mortgage tax deduction is an important factor in comparing renting versus buying and determining how much home you can afford
Total amount of mortgage tax deduction benefit over the number of years you plan on staying in the property
Comparison of the average monthly rent and total monthly housing expense less the average monthly savings from the mortgage tax deduction over the number of years you plan on staying in the property. The mortgage tax benefit offsets some of your total monthly housing expense
Comparison of the total amount of rent payments and total monthly housing expense less the average monthly savings from the mortgage tax deduction over the number of years you plan on staying in the property
Projected value of the property at the end of the number of years you plan on staying in the property
Mortgage balance at the end of the number of years you plan on staying in the property
Projected value of your equity in the property at the end of the number of years you plan on staying in the property. Your equity equals the value of the property less the principal mortgage balance
Represents the estimated cost to process and close your mortgage including lender costs, third party closing costs and the appraisal fee
Represents your estimated profit or loss from buying the property based on your monthly housing costs, estimated property equity and closing costs

How Our Buy Versus Rent Calculator Works

Our Buy Versus Rent Calculator enables you to analyze numerous scenarios to determine the housing choice that is right for you based on your personal situation and objectives.  Our calculator uses the following inputs:

Current Rent.  This is your current monthly rent payment.

Annual Increase in Rent.  This is how much you think your rent will increase on an annual basis going forward so you can compare your future rent payments to your mortgage payment.

Property Purchase Price. The price of the home you want to buy.  Property purchase price impacts your monthly mortgage payment as well as property tax and homeowners insurance costs.

Down Payment. This is the component of the property purchase price that you contribute.  The higher your down payment, the lower your mortgage amount.

Interest Rate.  The higher your mortgage rate, the higher your monthly payment relative to your rent payment.

Mortgage Term. This is the length of your mortgage.  The longer your loan, the lower your monthly payment.

Years You Plan to Own the Property. How long you intend to live in the property influences the longer term comparison between renting and buying. For example, the longer you own a home, the more equity you can build.

Increase in Property Value. This is the projected annual property appreciation rate.  The higher the rate, the more valuable your property becomes over time and the more favorable buying a home is as compared to renting. We recommend using a conservative appreciation rate as property values are challenging to predict.

Property Tax Rate. Property taxes are an expense you pay when you own a home that you do not pay when you rent.  Property taxes are usually calculated based on a percentage of the property value.

Federal Tax Bracket.  Your tax bracket is used to calculate your mortgage tax deduction which is one of the advantages of owning a home as compared to renting.

Our Buy Versus Rent Calculator provides a detailed analysis of renting versus owning, including the following outputs:

Monthly Rent Compared to Mortgage Payment.  Our calculator enables you to compare your rent and mortgage payments in year one and in future years to to understand how the comparison changes as your rent increases but your mortgage payment remains fixed.

Monthly Rent Compared to Total Housing Expense.  This is a more accurate comparison of owning a home compared to renting as total monthly housing expense includes your mortgage payment plus property taxes and insurance.

Average Monthly Rent Compared to Total Housing Expense Less the Mortgage Tax Benefit.  This figure compares your rent payment to total housing expense but factors in the mortgage tax benefit which effectively reduces the cost of owning a home.  The higher your tax bracket and more interest expense you pay, the greater the tax benefit.

Homeowners Equity.  This shows you the value of your equity based on the property value appreciation rate and the number of years you intend to live in the home.  The higher the appreciation rate and longer you live in the home, the more equity you build.

Profit or Loss From Purchasing Property.  This shows you your profit or loss from owning a home as compared to renting.  This figure factors in all of the costs of buying a home including closing costs, your mortgage payment, property tax and insurance, but also the potential benefits including an increase in property value.  The figure helps you understand the financial impact of buying or renting a home.

Should You Rent or Buy?

1

Do You Like Short or Long Term Commitments?

Owning a home is usually a long-term financial commitment.  Most mortgages are 15-to-30 years in length as compared to most leases which are one year or shorter in length.  Additionally, when you own a home you are responsible for major repairs and upkeep which can be significant financial obligations.  Renters are not typically required to pay for property repairs or maintenance.  People comfortable with long-term commitments and financial responsibility are better suited for owning a home while people seeking flexibility and reduced financial obligation are well suited for renting a home.

2

Sharing the Upside...and the Downside

Buying a home enables you to participate in the upside if your property value increases as compared to renting which does not offer that opportunity.  If the value of the home you are renting increases significantly, 100% of that appreciation goes to property owner instead of the renter.  On the other hand, as a renter you are not exposed to the risk that the value of your property declines whereas homeowners could lose a significant amount of money, including all of their down payment, if the value of their home goes down.  Although home ownership provides financial rewards when property values go up, that benefit should be balanced against the downside that property values decrease.  You can input how much you think your property value will increase and how long you plan to own the property into our Buy Versus Rent Calculator to determine your future equity in the home. 

3

Making the Same Monthly Payment Never Gets Old

If you select a fixed rate mortgage, your monthly payment is set and does not change over the life of the loan.  A monthly rent payment, on the other hand, is subject to increase on a yearly basis.  Additionally, if you decide to or are forced to leave the property you are renting your new rent may increase significantly.  Although a monthly mortgage payment involves greater financial responsibility than a rent payment, it also provides greater certainty and peace of mind.  Making the same monthly mortgage payment for up to thirty years may make more financial sense than paying rent increases for thirty years.  Use our Buy Versus Rent Calculator to understand the financial impact of paying a fixed monthly mortgage payment in comparison to increasing rent payments over multiple years.

4

It is About More Than Just Your Mortgage and Rent Payments

When deciding if you should buy or rent a home you should compare your monthly rent payment to more than just your mortgage payment.  In addition to making your monthly mortgage payment, home owners are required to pay hazard insurance, property taxes and other potential housing expenses such as homeowners association (HOA) dues and mortgage insurance.  Homeowners are also responsible for property maintenance and upkeep costs.  Be sure to compare your monthly rent payment to total monthly housing expense and not just a mortgage payment when you are evaluating renting versus buying a home.  Our Buy Versus Rent Calculator enables you to compare monthly rent to total monthly housing expense, which provides a more accurate comparison.

5

Long Term Peace of Mind

Perhaps the biggest difference between renting and buying is that you can never pay off the rent.  On the other hand, when you pay off your mortgage you eliminate your monthly payment and your total housing expense declines significantly.  This is an important consideration as you think about financial planning for your future including retirement.  It may take 30 years or longer but not having a monthly mortgage or rent payment provides significant financial security and flexibility.  Plus you are less exposed to potential rent hikes or eviction in the future.  When deciding if you should buy or rent it is important to consider both the short and long term ramifications including your financial position several decades into the future.   

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Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. Click for more information on rates and product details.
While we pride ourselves on the quality and breadth of the FREEandCLEAR mortgage calculators please note that they should be used for informational purposes only. Our calculators rely on assumptions by us and inputs and assumptions provided by you, which may be inaccurate. The outputs from our calculators are estimates only and should not be used as the sole basis for making any financial decisions. Always consult multiple financial professionals when determining the mortgage size and program that is appropriate for you.

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Think you need a 20% down payment to buy a home? Think again. These no and low down payment programs make buying a home more attainable and may shift the math when you are evaluating if you should rent or buy

Sources

Buy Versus Rent: https://www.knowyouroptions.com/buy/overview/decide-whats-right-rent-or-buy

About the calculator developer

Michael Jensen, Mortgage and Finance Guru

Michael is the co-founder of FREEandCLEAR. Michael possesses extensive knowledge about mortgages and finance and has been writing about mortgages for nearly a decade. His work has been featured in leading national and industry publications. More about Michael

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