Is it cheaper to rent or buy?

It depends on your location, how long you stay, and current interest rates. Generally, buying is cheaper than renting if you stay 5+ years, have a 20% down payment, and mortgage rates are below 7%. In high-cost cities with low rent-to-price ratios, renting and investing the difference can be financially superior.

What is the 5% rule for rent vs buy?

The 5% rule says: multiply the home value by 5%, divide by 12 — if your rent is less than that number, renting is likely better. For a $400,000 home: $400,000 × 5% = $20,000 / 12 = $1,667/month. If you can rent a comparable place for less than $1,667, renting may be the smarter financial choice.

🏠 Home Decision

Rent vs Buy

Compare the true cost of renting vs buying a home over time

💡 Quick Answer: The 5% Rule — multiply home price by 5%, divide by 12. If rent is less than that, renting may be better. For a $400,000 home: $400K × 5% ÷ 12 = $1,667/month breakeven rent.

Home Price ($)

Down Payment (%)

Mortgage Rate (%)

Monthly Rent ($)

Years to Compare

Home Appreciation (%/yr)

Rent Increase (%/yr)

Investment Return (%/yr)

📚 Includes: mortgage principal & interest, property tax (1.1%), insurance (0.5%), maintenance (1%), and opportunity cost of down payment invested.

The True Cost of Buying a Home

The mortgage payment is just the beginning. Homeowners also pay: property taxes (typically 0.5-2.5% of home value per year), homeowner's insurance (0.3-1%), maintenance and repairs (budget 1-2% annually), HOA fees where applicable, and closing costs (2-5% at purchase). A $400,000 home with a $2,100 mortgage actually costs $3,000-3,500/month when you include all these expenses. However, a portion of each mortgage payment builds equity — your ownership stake in the property — which is a form of forced savings.

The Hidden Advantage of Renting

Renters have a powerful financial advantage that's often overlooked: the ability to invest the difference. If renting saves you $800/month compared to buying (including all ownership costs), investing that $800 monthly at 7% return produces $138,000 in 10 years. Renters also have zero maintenance costs, more geographic flexibility, and no exposure to housing market downturns. The "throwing money away on rent" argument ignores that homeowners "throw away" money on interest, taxes, insurance, and maintenance — none of which build equity either.

When Does Buying Win?

Buying typically wins when: you plan to stay 7+ years (to recoup closing costs), mortgage rates are below 6%, you have a 20% down payment (avoiding PMI), and local rent-to-price ratios are high (above 0.6%). In these conditions, home equity appreciation plus mortgage paydown usually outperform renting and investing the difference. The break-even point — where buying becomes cheaper than renting — is typically 5-8 years for most markets.

Disclaimer: This calculator provides estimates for educational purposes only. Real estate markets vary significantly by location. Property taxes, insurance rates, maintenance costs, and home appreciation vary by region. Consult a financial advisor and local real estate professional before making housing decisions.

Related Tools