How the comparison works
A rent-vs-buy comparison only tells the truth when both sides invest the difference. If your mortgage payment is $3,200 and rent nearby is $2,800, the renter must invest that $400/month gap — plus the down payment they didn't spend — for the comparison to be fair. Comparisons that skip this step always flatter buying, because they silently assume the renter spends the difference on nothing.
Mortgage FV Calculator tracks four things year by year: (1) home value with appreciation, (2) loan balance, (3) equity = value − balance, and (4) renter's portfolio compounding at the investment return you set. Net worth is equity for the owner, portfolio for the renter.
The costs people forget on the buying side
Principal and interest are the easy part. The costs that decide the outcome are the ones that never build equity:
- Property tax — typically 0.5%–2.2% of value a year depending on the state, and it grows with assessments even on a fixed-rate loan.
- Homeowners insurance — from about $1,300 a year in low-risk states to over $5,000 in coastal Florida. In some markets insurance now moves the payment more than a full point of interest would.
- PMI — 0.3%–1.5% of the loan a year until the balance reaches 78% of the original value. See the PMI calculator for when it actually falls off.
- Maintenance — a common planning figure is 1% of home value a year, lumpy in practice: a roof, a furnace and a water heater arrive as four-figure or five-figure events.
- Transaction costs — 2%–5% to buy and 6%–8% to sell. This single line is why short holding periods usually lose.
The costs people forget on the renting side
Renting is not cost-free either. Rent grows — historically around 3% a year in the US, faster in supply-constrained metros — while a fixed-rate principal and interest payment never does. That divergence is the single strongest argument for buying over a long horizon: by year fifteen the owner's core payment is unchanged in nominal terms while the renter's has roughly compounded by half again. Renters also forgo the leveraged exposure a mortgage provides: 10% down means a 3% rise in home value is a 30% return on the cash invested, before costs.
A worked example
Take a $450,000 home with 10% down at 6.75% over 30 years, against renting a comparable place for $2,600 a month. Principal and interest is about $2,627; add roughly $375 of property tax at 1%, $150 of insurance, $203 of PMI and $375 of maintenance and the owner is out about $3,730 a month against the renter's $2,600. The renter therefore invests the $45,000 down payment plus about $1,130 a month.
At 3% appreciation and a 7% portfolio return, the renter is ahead for the first several years — the buyer's early payments are almost all interest, and selling costs eat the paper equity. Crossover typically arrives somewhere between year seven and year eleven, after which the owner pulls away as amortisation accelerates, PMI drops off and rent keeps climbing. Change appreciation to 5% and the crossover moves years earlier; raise the portfolio return to 9% and it may never arrive. That sensitivity is the point: the answer is not "buying wins" or "renting wins", it is "which assumptions do you actually believe".
When buying usually wins
- You stay in the home for 7+ years.
- Rent is close to or above the mortgage principal + interest.
- Home appreciation is 3%+ per year in your area.
- You have 20% down and avoid PMI.
- You itemise deductions and the interest write-off is worth real money at your marginal rate.
When renting usually wins
- You'll move within 3–5 years.
- The price-to-rent ratio is above 20 (buying is expensive vs renting).
- You'd invest the down payment at 7%+ instead.
- HOA + property tax + maintenance stack above 3% of home value annually.
- Your income or location is unstable enough that forced selling is a real risk.
The price-to-rent shortcut
Before running the full model, the price-to-rent ratio — purchase price divided by annual rent for an equivalent home — gives a fast read. Under 15 usually favours buying, 15 to 20 is genuinely ambiguous and depends on your holding period, and above 20 the renter needs a long horizon and strong appreciation to lose. Treat it as a screen, not an answer: it ignores your interest rate, tax position and how long you will stay, all of which the full calculator handles.
Reading the answer in today’s dollars
A thirty-year comparison quoted in nominal dollars flatters both sides, because the dollars at the end are not the dollars you hold today. Set an inflation assumption in the calculator and every headline figure on the Rent vs Buy tab — owner net worth, renter net worth and the size of the advantage — can be switched into today’s dollars with one checkbox. At 2.5% inflation a nominal $1.45m of owner net worth in year thirty is worth roughly $690,000 in present purchasing power, and the gap over renting shrinks in the same proportion.
The ranking rarely flips when you deflate — both paths are discounted by the same index — but the magnitude does, and magnitude is what people act on. A “$460,000 advantage” that is really $220,000 of purchasing power is a different decision when weighed against the flexibility renting buys you.
Common questions
- Does the mortgage interest deduction change the answer?
- Less often than people assume. With the higher standard deduction and the $10,000 SALT cap, many buyers never itemise at all, and those who do only save their marginal rate on the portion above the standard deduction. Model it explicitly rather than assuming a flat discount on your payment.
- Should I compare in nominal or real dollars?
- Use real (inflation-adjusted) dollars to judge how much better off you actually are, and nominal dollars when you need the cash figures that will appear on a statement. The calculator reports both from the same run, so you never have to deflate by hand.
- What appreciation rate should I use?
- Long-run US home price growth has run close to inflation plus a small margin. Using 6%–8% because your metro did that recently will make almost any purchase look good. Run a 2% case as well and see whether the decision survives it.
- Should the renter's return be the stock market return?
- Use the return you would genuinely achieve after tax on the account you would actually use. A taxable brokerage at 7% nominal is not the same as 7% in a tax-advantaged account, and cash sitting in a checking account is not 7% at all.
- What about buying with cash?
- Set the down payment to the full price. The comparison becomes a straight opportunity-cost question — home appreciation plus imputed rent against your portfolio return — which the NPV framework handles more directly.