On a month-to-month cash-flow basis, renting is cheaper than buying in most U.S. markets at current mortgage rates. A $400,000 home with 20% down at 6.5% carries a mortgage payment of $2,023 — before adding roughly $367 per month in property taxes, $125 in insurance, and $333 in maintenance reserves. Total monthly ownership cost runs about $2,850, versus $2,200 in rent for a comparable home.
But that monthly gap does not tell the full story. The renter invests the $80,000 down payment and monthly savings, while the buyer builds equity through loan paydown and appreciation. The net-worth comparison at your planned horizon is what matters for the actual financial decision.
The calculator above runs both sides at the same total budget. Here is what goes into the cost comparison.
What the buyer actually pays each month
The mortgage payment covers only principal and interest — typically about 70% of the true monthly cost of ownership. The full picture adds property tax (charged on the current appreciated home value, not the original purchase price), homeowner's insurance, maintenance and repair reserves, and any HOA fees.
On a $400,000 home with 1.1% property tax and 1.0% maintenance, total monthly ownership costs in year 1 run approximately $2,850. By year 10, the home has appreciated — meaning property tax and maintenance are levied on a higher base. Ownership costs rise even as the principal and interest payment stays fixed.
What the renter actually pays (and invests)
Rent is the floor, not the ceiling. Add renter's insurance, any utilities excluded from the rent, and the creeping reality of lease renewals. At 3% annual rent growth, a $2,200 rent hits $2,955 in 10 years. The renter's monthly housing bill grows, while the buyer's principal and interest payment stays locked at the original amount.
The renter's financial advantage comes from liquidity and compounding. The $80,000 down-payment equivalent stays invested and growing. Monthly rent savings — in months when renting is cheaper — also flow into the invested pot. This calculator tracks both precisely, which is why the verdict is not simply 'rent is cheaper': it depends entirely on how long you stay.
The 5-year vs 10-year picture
At 5 years — the default for this view — renting typically comes out ahead in most markets. The buyer has paid 3% upfront in closing costs and will spend 6% to sell. That is nearly $36,000 in round-trip transaction costs on a $400,000 home before the comparison even starts. Home appreciation rarely catches up in just 5 years at today's rates.
At 10 years, the picture often flips. Equity has built, the mortgage is more than a third paid down, and rent has grown while the mortgage payment has not. This is why the single most important variable in the rent-vs-buy decision is how long you plan to stay.
Frequently asked questions
Is it cheaper to rent or buy right now?
In most U.S. markets at current mortgage rates (6–7%), the monthly cost of owning — mortgage, taxes, insurance, and maintenance — exceeds comparable rent. On a cash-flow basis, renting is cheaper today in most metros. The long-run calculus shifts once rent grows, the mortgage balance falls, and appreciation compounds — but upfront, the monthly advantage goes to renting.
What are the hidden costs of buying a home?
Beyond the mortgage: property tax (0.5–2.5% of current home value annually), maintenance and repairs (budget 1–2% of home value per year), homeowner's insurance ($1,000–$3,000/year), HOA fees if applicable, and 3% entry plus 5–6% exit costs. These hidden costs routinely add $600–$1,500 per month on a $400,000 home on top of the mortgage payment.
Does renting ever become more expensive than buying?
Over time, yes. If you lock in a fixed-rate mortgage and rents in your area grow 3% per year, the renter's monthly outlay eventually overtakes the buyer's. On a $2,000 starting rent at 3% annual growth, monthly rent reaches $2,688 in 10 years and $3,612 in 20 years — while the buyer's principal-and-interest payment never changes.
What is PITI and how does it affect the comparison?
PITI stands for Principal, Interest, Taxes, and Insurance — the four components of a complete housing payment. For a $400,000 home with 20% down at 6.5%: P+I is roughly $2,023, property taxes around $367/month, and insurance around $125/month. Total PITI is approximately $2,515 before maintenance. Compare this to local rent for a fair monthly cost check.
Can I afford to buy?
Lenders generally cap total housing costs at 28% of gross income (front-end DTI) and all debts at 36–43% (back-end DTI). On a $400,000 home with 20% down, you typically need roughly $86,000 or more in household income to qualify. You also need the down payment plus 2–4% for closing costs in liquid savings before you can close.
Worked examples
Worked example 1
Monthly cash-flow comparison — 5-year horizon
$380,000 home, 20% down, 6.5% rate, $2,200/month rent. Cost-focused framing over a short 5-year window.
Monthly mortgage
$1,921
Verdict
Buying wins
Break-even year
Year 5
At 5 years, renting is often cheaper on a total-cost basis once you account for the $19,660 in interest paid in year one and the eventual 6% selling cost. The buyer's equity partially offsets this, but not fully at year 5.
What affects the result
Unrecoverable costs of ownership
Every dollar of mortgage interest, property tax, insurance, and maintenance is spent and gone — just like rent. In year one of a 6.5% mortgage on a $380,000 loan, roughly $19,000 goes to interest alone. Renting avoids this but replaces it with rent payments.
Recoverable equity and appreciation
The buyer does recover part of every payment through principal pay-down and appreciation. But at 6.5% and a 30-year term, only about 15% of the first payment is principal. Appreciation adds more, but it's realised only when you sell — minus 5–8% in selling costs.
HOA and special assessments
HOA fees add a recurring cost that renters almost never bear for equivalent apartments. Condos with $300–500/month HOA fees can tip a marginal buying case firmly into rent-favoured territory on a pure cost basis.
More questions answered
Why is my mortgage payment close to my rent but buying still seems more expensive?
Your mortgage payment is only part of the cost. Add property tax (typically 0.8–1.5% of home value per year), homeowners insurance (~$1,200–2,000/year), maintenance (budget 1% of home value annually), and possibly HOA fees. These unrecoverable ownership costs often exceed the rent-mortgage payment difference, especially in the early years.
What is the 5% rule for rent vs. buy?
The 5% rule estimates the annual unrecoverable cost of ownership as 5% of home value: roughly 1% property tax + 1% maintenance + 3% opportunity cost on equity. Divide by 12 to get a monthly benchmark. If your monthly rent is below this figure, renting is usually cheaper on an annual cash-flow basis. For a $400,000 home that benchmark is $1,667/month.
Is it cheaper to own after 10 years?
Often yes, but not always. After 10 years you have paid down meaningful principal and benefitted from appreciation, while rent has risen 3% annually. Whether the net-worth lead justifies the higher monthly cash costs depends on your local market's price-to-rent ratio and the investment return the renter earned on their portfolio.
Model assumptions & disclosures
Equal-budget method. Both buyer and renter are assumed to spend the same total amount each month. The person with the lower required outlay invests the monthly difference into a diversified portfolio at the specified annual return. The renter also invests the down payment and estimated closing costs at the start of the comparison period.
Nominal figures. All rates — home appreciation, rent growth, and investment return — are nominal (not inflation-adjusted). Comparisons are internally consistent on a nominal basis.
No tax effects. Mortgage interest deductibility, capital gains exclusion on home sales ($250k/$500k), and investment account tax treatment are not modelled. Since the 2017 Tax Cuts and Jobs Act, fewer than 10% of taxpayers itemise, so the mortgage interest deduction is omitted as a default. Consult a tax professional for your specific situation.
Selling costs applied at horizon end. When computing buyer net worth at your planning horizon, the calculator deducts the specified selling-cost percentage from the home’s projected market value, reflecting the realistic proceeds from a sale.
Not financial advice. This calculator provides illustrative projections based on your inputs. It does not account for personal circumstances such as job security, credit score, local market conditions, or individual tax situations. Consult a qualified financial advisor or real estate professional before making housing decisions.