What does it cost to rent each month?
Renting is simple to cost out. You pay rent, usually renter's insurance, and sometimes fees for parking, pets or application checks. Most repairs are the landlord's problem, and you don't pay property tax directly (it is built into the rent).
The catch is that rent tends to rise over time. A lease locks your rent for its term, but the next lease can be higher. When you project renting over several years, include a yearly rent increase, even a modest one. The inflation calculator shows how fast a cost grows at a constant yearly rate.
What does it cost to own a home each month?
Owning has more moving parts. Your monthly outlay includes:
- Mortgage principal and interest (P&I). Use the mortgage calculator to get this figure for your price, rate and term.
- Property tax, set by your local government and usually paid through escrow.
- Homeowners insurance, plus PMI if you put down less than 20% on a conventional loan.
- Maintenance and repairs. A common rule of thumb is to budget about 1% of the home's value each year, though older homes can need more.
- HOA fees, if the home is in an association.
Then there are one-off costs: closing costs when you buy and selling costs (agent commission, transfer taxes, fees) when you sell. These don't show up in a monthly payment, but they are the main reason buying is costly if you move again soon.
Why isn't the monthly payment a fair comparison?
Part of every mortgage payment is principal, which reduces your loan and comes back to you when you sell. That part is closer to saving than spending. Rent, on the other hand, is gone once paid.
So the fair comparison is unrecoverable cost: money you spend and never get back. For a buyer, that is:
Cost of buying = interest + property tax + insurance + maintenance + closing costs + selling costs + lost growth on cash invested − increase in home value
For a renter, it is rent plus renter's insurance. Whichever total is lower over the time you plan to stay is the cheaper choice on these assumptions.
Worked example: renting vs buying over 7 years
All figures below are hypothetical and chosen to show the method, not to predict any market.
- Home: $350,000 price, 20% down ($70,000), $280,000 loan at 6.5% fixed for 30 years. P&I is $1,769.79 a month.
- Owner costs in year one: property tax 1% of price ($3,500), insurance $1,800 and maintenance 1% of price ($3,500). Each rises 3% a year.
- Buying and selling: closing costs of 3% ($10,500) and selling costs of 6% of the sale price.
- Home value: grows 3% a year, to about $430,456 after 7 years.
- Lost growth: the $80,500 of down payment and closing costs could otherwise earn 5% a year.
- Renting: $2,000 a month plus $20 renter's insurance, both rising 3% a year.
In the first month, the owner pays about $2,503 (P&I plus one-twelfth of tax, insurance and maintenance) against $2,020 for the renter. Over 7 years, the unrecoverable costs add up like this:
| Cost over 7 years | Buying | Renting |
|---|---|---|
| Mortgage interest | $121,828 | – |
| Property tax | $26,819 | – |
| Homeowners insurance | $13,792 | – |
| Maintenance | $26,819 | – |
| Closing costs | $10,500 | – |
| Selling costs (6% of $430,456) | $25,827 | – |
| Lost growth on $80,500 at 5% | $32,772 | – |
| Less: rise in home value | −$80,456 | – |
| Rent and renter's insurance | – | $185,738 |
| Total unrecoverable cost | $177,901 | $185,738 |
On these assumptions, buying comes out about $7,837 cheaper after 7 years. When you sell, you walk away with about $151,463 after paying off the remaining $253,165 loan and selling costs.
How long do you need to stay for buying to pay off?
Running the same example for different holding periods shows how the upfront costs dominate early on:
| Years in the home | Cost of buying | Cost of renting | Cheaper option |
|---|---|---|---|
| 1 | $52,563 | $24,240 | Rent, by $28,323 |
| 3 | $94,562 | $74,923 | Rent, by $19,639 |
| 5 | $136,358 | $128,693 | Rent, by $7,665 |
| 6 | $157,164 | $156,794 | Rent, by $370 |
| 7 | $177,901 | $185,738 | Buy, by $7,837 |
| 10 | $239,608 | $277,884 | Buy, by $38,277 |
Change one assumption and the answer shifts. If the home's value stays flat instead of rising 3% a year, buying costs about $253,529 over 7 years against $185,738 for renting. If the same home rents for $1,700 instead of $2,000, renting is still cheaper after 10 years, by about $2,994.
When does renting make more sense?
- You may move within a few years. Closing and selling costs need time to be absorbed.
- Rent is low compared with the price. If a home that costs $350,000 rents for much less than the ownership costs above, renting often wins. The rental yield calculator helps you see how rents compare with prices in an area.
- Buying would empty your savings. Owning brings surprise repairs, so keep an emergency fund on top of the down payment and closing costs.
- The payment would stretch your budget. Check a realistic price range with the home affordability calculator before you compare.
Buying tends to make more sense when you plan to stay for many years, rents are high relative to prices and you value the stability of a fixed-rate payment.
What this comparison leaves out
The example ignores income taxes (such as any mortgage interest deduction or tax on a gain when you sell), PMI, HOA fees and moving costs. It also doesn't invest the renter's lower monthly outlay. A renter who invests the roughly $480 a month they save early on would narrow the gap further. Results depend on your personal circumstances, so treat this as a framework, not financial advice.