# Method: how the rent vs buy calculator works | Should I Rent or Buy

Source: https://shouldirentorbuy.org/method/

# Method

The calculator runs month by month. Every step is listed here. Last reviewed November 11, 2026.

1. Payment. Loan = price × (1 − down %). Monthly payment uses the standard amortization formula for the rate and term.
1. Cash at closing. Down payment + closing costs (% of price). The renter is assumed to invest this amount instead.
1. Each month, owner cost = principal and interest + property tax (% of current value ÷ 12) + insurance ÷ 12 + HOA + maintenance (% of current value ÷ 12) + PMI.
1. PMI applies only when the down payment is under 20 percent, as % of the original loan per year, until the balance falls to 80 percent of the purchase price.
1. Renter cost = rent (raised once a year by the rent-increase rate) + renters insurance ÷ 12.
1. Invest the difference. Whichever side is cheaper that month invests the difference. Both portfolios grow monthly at the return you enter.
1. Net worth at each year end. Buyer = home value × (1 − selling %) − loan balance + buyer’s portfolio. Renter = renter’s portfolio.
1. Break-even year = the first year the buyer’s net worth is at least the renter’s.

## What is left out

- Income taxes, including the mortgage interest deduction and capital gains rules.
- Refinancing, extra payments, and changes in rate after closing.
- Moving costs and differences in utilities between the two homes.

## Questions

### Does the calculator include the mortgage interest deduction?

No. Tax effects depend on whether you itemize, your bracket, and current law. Leaving them out keeps the tool honest; ask a tax professional how they apply to you.

### Does it predict home prices?

No. Home value growth is an input you choose. Try a low, middle, and high value to see the range.

## Example inputs

Price $400,000, 20% down, 6.5% for 30 years, tax 1.1%, insurance $1,800 a year, maintenance 1.0%, closing 3.0%, selling 6.0%, home growth 3.0%, rent $2,200 rising 3.0%, return 5.0%. These are illustrations, not market data.

If you want a person to talk through renting or buying where you live, [talk to a real estate professional](https://shouldirentorbuy.org/#talk). The form is an inquiry only. This site does not name an agent or promise a call.