How the break-even is worked out
Each year the calculator tallies two running totals.
- Renting: the rent you pay, increased each year by your rent growth rate.
- Buying: down payment and closing costs, plus every mortgage payment, property tax and maintenance (both as a percentage of the home’s growing value), and insurance. Then it adds the investment gains your up-front cash could have earned, and subtracts what you would net by selling: home value minus selling costs minus the remaining loan balance.
The break-even year is the first year in which selling would leave you better off than renting. The mortgage payment uses the standard formula P × r ÷ (1 − (1 + r)−n) with monthly rate r and n payments. For a $300,000 loan at 6% over 30 years, that gives $1,798.65 a month, and a balance of about $251,057 after ten years.
Worked example
Start from the calculator’s default values: a $400,000 home with $80,000 down, a 6.5% 30-year mortgage, property tax of 1.1% and maintenance of 1% of the home’s value a year, $1,800 a year of insurance and 3% closing costs. The home gains 3% a year, selling costs are 6%, and the up-front cash could have earned 4%. The alternative is $2,300 a month in rent, rising 3% a year.
The mortgage payment is $2,022.62 a month on a $320,000 loan. Renting is cheaper for the first five years (by $4,022 in year 5), and buying pulls ahead in year 6. After 10 years, rent totals $316,403 while the net cost of buying is $259,164, so buying comes out about $57,239 ahead. By then the home would be worth about $537,567, with $271,284 still owed on the loan.
Costs people forget when buying
The mortgage payment is only part of owning. Property tax, insurance and maintenance (a common rule of thumb is about 1% of the home’s value a year) continue after the loan is paid off. Buying costs 2-5% of the price in closing costs, and selling often costs around 6% with agent fees, which is why short stays tend to favor renting.
Early mortgage payments are mostly interest, so equity builds slowly at first. A rise in home prices helps, but prices can also stall or fall in some years and places. Try appreciation at 0% and 2% to see how much your answer depends on it.
What the model leaves out
To stay readable, the calculator ignores income tax effects such as the mortgage interest and property tax deductions (many households take the standard deduction anyway), private mortgage insurance for down payments under 20%, HOA fees, renter’s insurance, moving costs and rising home insurance. It also does not value non-financial factors such as stability, freedom to renovate or flexibility to move.
Use it to test assumptions rather than to predict the future, then compare monthly cash needs with your take-home pay. A lender or independent adviser can model your exact numbers.
Frequently asked questions
What is a break-even year?
It is the first year when the net cost of buying, including selling costs and the loan payoff, drops below the total rent you would have paid. If it is later than you plan to stay, renting is likely cheaper.
Why include the return on the down payment?
Cash used for a down payment cannot be invested elsewhere. Counting a modest return on it avoids favoring buying just because the money looks free.
What appreciation rate should I use?
Long-run averages are often quoted in the low single digits, but local history varies widely. Test several values rather than relying on one guess.
Does it include PMI or HOA fees?
No. If you have either, add them to the maintenance percentage or the insurance amount to approximate the extra cost.
Is renting throwing money away?
Not necessarily. Rent buys housing, and a lot of what a homeowner pays (interest, tax, upkeep, selling costs) is not recovered either. The calculator compares both honestly.