Rent vs Buy
Over a set number of years, which costs less: paying rent or buying and holding.
Enter your numbers
Example: 1500
Example: 300000
Example: 20
Example: 6
Example: 30
Example: 5
Recent
Formula
How the calculation works
The mortgage term and the holding period are separate inputs, and keeping them apart is the point. A 30-year mortgage held for 5 years has only paid down a little, so the equity owned at the end is small; the payment is low but the buyer has bought little.
The two costs are put on the same footing. The renter pays rent for the months held; the buyer pays the deposit plus the mortgage payments, less the equity owned at the end. Over five years at these figures that nets 69,666 against 90,000 of rent, so buying wins by 20,334.
Common mistakes
- Comparing only the monthly payment with the rent. The deposit and the equity owned at the end are what make the two comparable, and the payment alone ignores both.
- Assuming the term is the holding period. Most buyers sell or move long before a 30-year mortgage ends, so the years held is the figure that matters.
When to use it
- Use it when you know how long you intend to stay, so the comparison is made over the period that actually applies.
- It is also the tool for the move-or-stay question: raise the years and watch the two sides cross, which is the point at which buying starts to pay.
Worked example
Five years of 1,500 rent is 90,000; buying nets 69,666 over the same period, so buying is 20,334 cheaper.
Common questions
When does buying win?
Buying wins as the years lengthen, because the upfront cost is spread over more of them. Change the years here and watch the two sides cross.
Is appreciation or rent rises included?
No, deliberately not. Both depend on assumptions, and changing an assumption changes the answer. This compares the certain costs only.
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