Rent vs. Buy — methodology

Three numbers, kept separate

• Cash flow — what leaves your pocket each month. Includes mortgage principal, even though principal isn't a true cost.
• True cost — the part of owning that's actually spent: interest, taxes, insurance, PMI, HOA, maintenance, transaction costs — minus tax benefits and rental income. Excludes principal, because principal builds equity.
• Net worth — the big-picture outcome, and our primary verdict. Compares the buyer's home equity (after selling costs) plus any side investments against the renter's investment portfolio.

The simulation

We run the comparison month by month for the full mortgage term (default 30 years / 360 months). Each month we compute:

• Mortgage amortization. The fixed monthly payment is P · c / (1 − (1 + c)⁻ⁿ), where P is the loan, c the monthly rate, n the number of payments. We split each payment into interest and principal and track the remaining balance.
• Ownership costs. Property tax, insurance, HOA, maintenance, and improvements as a share of the (appreciating) home value. PMI applies while the loan-to-value ratio is above 80% and drops off automatically once equity crosses that line.
• Home value & rent both grow at their own annual rates, compounded monthly.

The fair-comparison rule

Both paths start with the same total wealth. The renter invests the cash the buyer would have spent up front — the down payment plus closing costs. Then, in any month where one side is cheaper than the other, that side invests the difference. So neither side gets to secretly hoard cash; the money the buyer doesn't spend on a down payment is working for the renter, and vice versa. Investments grow at your assumed annual return, compounded monthly.

The tax benefit (we don't overstate it)

Homeownership only saves you tax to the extent your itemized deductions exceed the standard deduction. We compute the incremental benefit only:

itemized = mortgage interest + min(property tax, SALT cap) + other itemized deductions
incremental = max(0, itemized − standard deduction)
tax benefit = incremental × your marginal federal rate

This is why our tax savings are usually smaller than other calculators': most filers take the standard deduction, so the first chunk of mortgage interest saves them nothing.

Break-even

We report three break-even points: the month owning becomes cheaper on cash flow, the month it becomes cheaper on true cost, and — the one that matters most — the month the buyer's net worth overtakes the renter's. If buying never catches up within the term, we say so plainly rather than implying it eventually wins.

What we don't model (yet)

• Depreciation or depreciation recapture on rentals
• Refinancing or adjustable-rate mortgages
• Detailed state-level tax modeling
• The capital-gains exclusion on a primary-residence sale
• Local closing-cost and transfer-tax quirks

These can move the answer, especially over long horizons. Treat the output as a well-reasoned estimate, not a forecast.

The honest caveat

This is educational, not financial advice. Appreciation, rates, rents, and investment returns vary — including down years we don't simulate. The biggest driver is usually how long you stay: transaction costs hurt short stays and fade over long ones. See the Editorial Policy for how we keep these tools honest, and run the calculator to see your own numbers.