Rent vs. buy methodology
A month-by-month comparison of housing costs, debt, home value, and invested differences.
Starting positions
The loan equals home price minus the selected down payment. The renter begins with an investment equal to that down payment plus the buyer’s estimated purchase costs. The buyer begins with no separate investment account in the model because the down payment is represented in home equity.
Monthly simulation
The fixed mortgage payment uses the standard amortizing-loan formula.
Payment = principal × r(1+r)n ÷ ((1+r)n − 1)
Each month, interest is charged on the outstanding balance and the remainder reduces principal. Owner cost is mortgage payment plus annual property tax and maintenance divided monthly, plus home insurance. Rent grows smoothly at the entered annual rate. The lower-cost path invests the monthly difference at the entered annual investment return converted to an effective monthly rate.
Ending net worth
Home value compounds at the entered annual appreciation rate. Owner net worth equals home value minus selling costs and remaining mortgage, plus the buyer’s invested monthly savings. Renter net worth equals the renter’s growing investment account. The displayed difference is owner net worth minus renter net worth.
Assumptions
- Rates are constant; cash flows occur monthly.
- Property tax and maintenance scale with modeled home value.
- Insurance is flat in nominal dollars.
- The household invests every modeled cost difference.
- The home is sold at the end of the horizon.
- No value is assigned to housing stability, flexibility, or personal preference.
Exclusions
The model excludes mortgage insurance, association fees, utilities, renovations, investment and property taxes, tax benefits, refinancing, rent deposits, vacancy, closing-cost detail, and irregular repairs. It is a directional comparison rather than a quote or appraisal.