Rent vs buy: which is better?

How the comparison works

Two households start with the same cash. One buys the home. The other rents a similar home and invests the cash the buyer spends. The calculator follows both month by month for the years you stay, then compares what each would own.

Buying

• Loan L = price × (1 − down payment %). The monthly payment is the fixed-rate amortization payment M = L × i ÷ (1 − (1 + i)^−n), with i = rate ÷ 12 and n = years × 12 (M = L ÷ n at 0%).
• Cash up front = down payment + buying closing costs (a share of the price).
• Each month: interest = balance × i, and the payment (the last one is whatever is left) reduces the balance.
• Property tax, insurance, and maintenance are yearly shares of the home's value at the start of the month, divided by 12. HOA is a fixed monthly fee.
• PMI: only when the loan is above 80% of the price, the loan × PMI rate ÷ 12 each month, while the balance at the start of the month is above 78% of the price.
• Home value grows each month by (1 + yearly growth)^(1/12).

Tax saving from owning (2026 federal rules)

At the end of each year of the stay:

• Average balance = (the balance on the first day of the year + the balance at the end of the year) ÷ 2, the "average of first and last balance" method in IRS Publication 936.
• Deductible interest = that year's mortgage interest, times 750,000 ÷ the average balance when the average balance is above $750,000.
• SALT = that year's property tax, up to the SALT limit: $40,400, reduced by 30% of income above $505,000, but not below $10,000.
• Itemized deductions = deductible interest + SALT. If this is not more than the standard deduction ($16,100 single, $32,200 married filing jointly, $24,150 head of household), there is no saving.
• Tax = the 2026 federal tax on taxable income by the brackets (10% up to 37%), where taxable income = income − deduction, and 0 when that is 0 or less.
• Tax saving = tax with the standard deduction − tax with the itemized deductions. It is never more than the tax you would owe, so at $0 income it is $0. It reduces the cost of buying in the last month of that year.

Income is treated as the same every year, and 2026 amounts are used for every year. State income and sales taxes are not counted.

Renting

• Rent starts at today's rent and rises by the rent increase at the start of each new year.
• Cost of buying each month = payment + property tax + insurance + maintenance + HOA + PMI − tax saving. Cost of renting = rent.
• Whoever pays less that month invests the difference. Both investment accounts grow each month by (1 + yearly return)^(1/12), then take the month's new money. The renter's account starts with the buyer's cash up front.

Net worth at the end of each month

• If you buy: sell at the home's value × (1 − selling costs %), pay off the balance, and pay capital gains tax on the gain above the exclusion (a loss gives no tax back). Gain = sale after costs − (price + buying closing costs). The exclusion is $250,000 ($500,000 married filing jointly), and only after 24 months. Add the buyer's investments, less capital gains tax on their growth.
• If you rent: the renter's investments, less capital gains tax on their growth (the account minus the money put in).
• Capital gains tax is charged only on a gain. When the home or an investment account is worth less than what went in, the tax is 0; a loss gives no tax back.

The better choice is the one with more at the end, and better off by is the difference. Buying pays off after is the first month from which buying stays ahead until the end. If renting is ahead at the end, there is no break-even.

When the data is out of date

The tax saving is worked out with the 2026 IRS tax brackets, standard deductions, and SALT limit. After December 31, 2026, the calculator keeps using the 2026 tables until the page is updated, and the result says “Uses 2026 federal tax tables”.

Worked examples by hand

The default: a $400,000 home, 20% down at 5.5% for 30 years, or $1,800 rent, for 10 years. The rent is about 0.44% of the price a month, the US median gross rent ($1,348) over the median home value ($303,400) in the Census Bureau's 2019-2023 survey. Buying costs $2,716.92 in the first month (worked out below), more than the rent, so the renter invests the difference. After 10 years the renter has $294,645 and the buyer $245,921, so renting is $48,724 better off.

The old page's defaults: the same home, or $4,000 rent, for 10 years. The loan is $320,000, so M = 320,000 × 0.0045833 ÷ (1 − 1.0045833^−360) = $1,816.92. First month: property tax 400,000 × 1.2% ÷ 12 = $400, insurance $166.67, maintenance $333.33, no PMI at 20% down: $2,716.92 a month against $4,000 rent. Cash up front: $80,000 + 2% × $400,000 = $88,000. The buyer invests what they save: $1,283 a month in the first year. After 10 years the buyer has $501,394 and the renter $160,343, so buying is $341,051 better off, and it stays ahead from month 15 (1 year and 3 months). The tax saving over 10 years is $12,527. In the first year, interest of about $17,500 plus $4,800 of property tax is above the $16,100 standard deduction, and each extra dollar saves 22 cents.

Rent $2,000 and stay 5 years. Now renting is cheaper each month, so the renter invests the difference too. After 5 years: renting $163,094, buying $143,475. Renting is $19,619 better off.

10% down, rent $2,500. The loan is $360,000, above 80% of the price, so PMI of 360,000 × 0.5% ÷ 12 = $150 a month is paid until the balance drops to $312,000. The first month costs $2,044.04 + $400 + $166.67 + $333.33 + $150 = $3,094.04. Buying breaks even after 4 years.

A $900,000 home, 10% down, or $3,500 rent, married, $250,000 income, 15 years. The $810,000 loan is above $750,000, so each year only 750,000 ÷ the year's average balance of the interest is deductible, until the average falls to $750,000. The tax saving over 15 years is $66,345. Renting still ends ahead with $1,162,056, $380,209 more than buying.

A $1,000,000 home, $6,000 rent, head of household, $700,000 income. The SALT limit would be 40,400 − 30% × (700,000 − 505,000) = −18,100, so it is the $10,000 floor, below the $12,000 property tax. In the first year, interest on the $800,000 loan is $43,731.03, and the balance falls to $789,223.28, so the average balance is $794,611.64 and 750,000 ÷ 794,611.64 of the interest, $41,275.85, is deductible. Itemized deductions are $51,275.85. Taxable income is 700,000 − 24,150 = $675,850 with the standard deduction and $648,724.15 itemized, both in the 37% bracket, so the saving is (675,850 − 648,724.15) × 37% = $10,036.56. Over 10 years the saving is $95,417, and buying breaks even after 3 years.

A $3,000,000 home, $12,000 rent, married, $520,000 income. The SALT limit is 40,400 − 30% × 15,000 = $35,900, just below the $36,000 property tax of the first year. Taxable income is $487,800 with the standard deduction, in the 32% bracket. Over 10 years the saving is $143,957, but renting still ends ahead: $2,454,050 against $1,853,117.

The numbers in these examples come from the rules above, run month by month.

Rent vs. Buy: The Ultimate Guide to Making the Right Financial and Lifestyle Choice

The decision to rent or buy a home is one of the most significant financial and lifestyle choices you'll make. This comprehensive guide helps you understand the trade-offs, calculate the numbers, and make an informed decision that aligns with your personal and financial goals.

The Rent vs. Buy Decision: More Than Just a Math Problem

The decision to rent or buy a home extends far beyond a simple comparison of monthly payments. It's a deeply personal choice that rests at the intersection of your financial situation, long-term goals, career path, and even your emotional disposition.

For some, the freedom and flexibility of renting are paramount. For others, the stability, pride of ownership, and wealth-building potential of buying a home are the ultimate objectives. This guide helps you navigate this complex decision with confidence.

Initial High-Level Comparison

The Case for Renting: Flexibility, Predictability, and Lower Barriers

For many individuals, particularly those early in their careers, uncertain about their long-term plans, or living in high-cost areas, renting is not just a temporary step but a sound strategic choice.

Unmatched Flexibility

With lease terms typically lasting 6-12 months, renters can adapt to life's changes with relative ease. Ideal for career relocation or exploring new cities.

Lower Upfront Costs

Security deposit and first month's rent vs. substantial down payment and closing costs. This difference can amount to tens of thousands of dollars.

Maintenance-Free Living

When a pipe bursts or appliance breaks, the renter's responsibility is to make a phone call. The landlord bears both financial and logistical burdens.

The Case for Buying: Building Wealth, Stability, and a Place to Call Your Own

For those with the financial means and a long-term perspective, buying a home is a cornerstone of wealth creation, offering stability and the freedom to create a personalized living space.

Building Equity & Wealth

A home acts as a “forced savings account”. Each mortgage payment builds your ownership stake, while potential market appreciation accelerates wealth creation.

Key Benefit:

While a renter's payment is pure expense, a homeowner's payment is part expense (interest) and part investment (principal paydown).

Stability and Predictability

A fixed-rate mortgage locks in your principal and interest payment for the entire loan term, providing unparalleled long-term financial stability.

Inflation Hedge:

While renters face unpredictable annual increases, homeowners have predictable core housing costs.

The Financial Engine of Homeownership: How Buying Builds Wealth

Understanding Home Equity

Home equity is the portion of your home that you truly own. It's calculated by taking the current market value and subtracting your outstanding mortgage balance.

Example:

Home value: $500,000 Mortgage balance: $350,000 Your equity: $150,000

The Power of Leverage

Leverage allows you to use a small amount of your own money (down payment) to control a much larger asset (the home).

Example:

$100,000 down payment Controls $500,000 home 5% appreciation = $25,000 gain 25% return on your $100,000 investment

Finding Your Tipping Point: The Break-Even Horizon

The break-even horizon is the point when the total financial cost of owning equals the total cost of renting. This is the moment the financial scale tips decisively in favor of homeownership.

Early Years (Advantage Renting)

• High upfront costs (closing costs)
• Front-loaded interest payments
• Slow initial equity growth
• Buying more expensive short-term

Later Years (Advantage Buying)

• Fixed mortgage payment stability
• Rising rents with inflation
• Compounding equity benefits
• Tax advantages accumulate

Your Personal Decision Checklist: Are You Ready to Buy?

Financial Readiness

Sufficient savings for upfront costs

Down payment (3-20%) + closing costs (2-5%) without draining emergency fund

Strong credit score

740+ for best rates, 620+ minimum to qualify

Healthy debt-to-income ratio

Housing payment under 30% of gross income

Robust emergency fund

3-6 months of essential expenses after buying costs

Lifestyle & Career Stability

Secure income

Stable job and industry outlook

Long-term location commitment

Plan to stay 5-7+ years to reach break-even

Preference for stability

Value community connection and control

Risk tolerance

Can handle market fluctuations and repair costs

Making Your Confident Choice

The decision to rent or buy is not about finding a single “correct” answer, but discovering the answer that's right for you. Use the calculator above to get your specific numbers, then combine that data with the insights from this guide to make a confident, well-informed decision that aligns with your unique financial position, timeline, and life goals.

Remember: The best choice is the one that holistically aligns with your personal and financial reality.