The three numbers that matter
- NPV (Net Present Value) — today's value of every future cash flow: down payment out, monthly costs out, sale proceeds in. Positive NPV means the purchase beats the discount rate.
- IRR (Internal Rate of Return) — the discount rate that would make NPV zero. Compare it to what you'd earn elsewhere.
- Discount rate — the "cost of your money." Mortgage FV Calculator defaults this to the current 10-year US Treasury yield (a risk-free benchmark) but lets you override it.
Building the cash-flow series
NPV is only as good as the cash flows you feed it. For a home purchase the series has three parts, and getting the signs and timing right matters more than the precision of any single input.
- Time zero (outflow): down payment, plus closing costs of roughly 2%–5% of price — origination, appraisal, title, transfer taxes, prepaid escrow.
- Each month (outflow): principal and interest, property tax, insurance, PMI until it terminates, HOA dues and a maintenance reserve. Principal repayment is a real cash outflow here even though it builds equity — the equity comes back in the terminal value, so counting it twice is the most common error.
- Final period (inflow): sale price grown at your appreciation assumption, less selling costs of 6%–8%, less the outstanding loan balance at that month from the amortisation schedule.
If you are comparing against renting rather than against a portfolio, subtract the rent you would otherwise pay from each monthly outflow. The result is the incremental cost of ownership, and its NPV answers "is owning worth the premium?" directly.
Why the 10-year Treasury?
The 10-year Treasury is the standard "risk-free rate" in corporate finance. If a home purchase can't beat locking money in Treasuries, the numbers don't justify the risk. Mortgage FV Calculator fetches the live rate from home.treasury.gov so your NPV always reflects today's opportunity cost.
It is a floor, not a target. A home is illiquid, leveraged, geographically concentrated and expensive to exit, so a rational buyer demands a premium over the risk-free rate — many investors add 200–400 basis points. If your discount rate is the Treasury yield and NPV is only marginally positive, the purchase is not actually clearing a risk-adjusted hurdle. Conversely, if you would otherwise hold the cash in a diversified portfolio, your true opportunity cost is that portfolio's expected return, and you should discount at that instead.
Reading the result
- NPV > 0 & IRR > discount rate — the purchase is financially additive vs the alternative.
- NPV ≈ 0 — you're indifferent between buying and investing the down payment. Non-financial factors (stability, lifestyle) decide.
- NPV < 0 — you're paying a premium for ownership. That may still be worth it — just know the number.
Where IRR misleads
IRR is intuitive but fragile. Three failure modes show up constantly in property analysis. First, a cash-flow series with more than one sign change — a mid-hold cash-out refinance, say — can have multiple mathematically valid IRRs; the tool reports IRR as undefined rather than picking one. Second, IRR assumes interim cash flows are reinvested at the IRR itself, which flatters high-IRR, short-hold scenarios you could never actually repeat. Third, IRR is scale-blind: 30% on $20,000 of committed cash is worth less in dollars than 9% on $200,000. Use IRR to rank comparable options and NPV to decide whether any of them is worth doing.
Sensitivity: the three inputs that move the answer
Run each of these before trusting a single-point result. The holding period dominates everything — buy-and-sell costs of roughly 10% round-trip have to be amortised over the years you stay, so a three-year hold rarely clears any sensible hurdle while a ten-year hold usually does. Appreciation is next: the difference between 2% and 5% a year compounds into the terminal value and frequently flips the sign of NPV on its own. The discount rate is third, and it matters most for long holds, where distant sale proceeds are discounted hardest.
A practical discipline: find the appreciation rate at which NPV equals zero, then ask honestly whether your market will beat it. If the break-even assumption is 6% a year, you are not buying a home, you are making a leveraged bet on your metro.
What NPV deliberately ignores
The model prices cash flows, not lives. Security of tenure, school catchments, the freedom to renovate, the discipline of forced saving through amortisation and the inflation hedge of a fixed nominal payment are all real and none of them appear in the number. The point of running NPV is not to outsource the decision — it is to know exactly how much those non-financial benefits are costing you, so you can decide whether they are worth it.