How it works

A useful distinction

A refundable deposit still ties up money

A fully refunded rental deposit has zero nominal net cost, but it remains unavailable during the tenancy. With a positive comparison return, its present-value cost is positive; avoid treating the refund as an investment profit.

Making a rent-or-buy comparison over one horizon

A rent-versus-buy result depends on how long you stay and what happens to housing costs, property value, and alternative savings. Compare both paths over the same horizon and review the treatment of deposits and ending equity. A refundable deposit is different from an expense. The model is especially sensitive to long-term assumptions, so test several scenarios before relying on a single break-even point.

Rent vs. buy scenario: formula and assumptions

Compare net home equity after selling with the renter's invested initial cash and monthly cost differences.

This deterministic scenario excludes income-tax effects, moving costs, and uncertainty in rent, investment, and home-price growth.

Rent/buy streams & refundable deposit: formula and assumptions

Present cost = upfront cash + discounted annual housing outflows − discounted exit equity or deposit refund.

Both alternatives use the same horizon and discount rate. Loan principal remains in sale equity. The terminal wealth comparison grows the same cost difference once; it does not add opportunity cost twice.

Worked example

Reference example currency: USD. These fixed examples do not change with your calculator preferences.

Using the Rent vs. buy scenario example:

Inputs

Home price ($): 400000
Down payment (%): 20
Mortgage annual rate (%): 6.5
Mortgage term (years): 30
Comparison period (years): 7
Starting monthly rent ($): 2000
Annual rent increase (%): 3
Monthly ownership costs ($): 600
Annual home appreciation (%): 3
Annual investment return (%): 5
Purchase closing costs (%): 3
Selling costs (%): 6

Method

Compare net home equity after selling with the renter's invested initial cash and monthly cost differences.

Result

Example result

Buyer net equity & invested savings: $173,100.59

Renter invested balance: $174,011.53

Buying advantage under assumptions: -$910.94

Remaining mortgage balance: $289,331.98

These are illustrative inputs. Change the values to explore a different scenario.

Formula references

References explain the underlying methods; they do not imply endorsement or individual professional review of Finflo.

Common questions

How does the detailed mode treat a refundable deposit?

It records the deposit as an upfront renter outflow and the selected refund at exit. A full refund removes its nominal cost but can still have a present-value opportunity cost.

Is mortgage principal counted as an expense twice?

No. The detailed mode includes payments in cash outflows and subtracts remaining loan debt from sale proceeds to calculate equity at exit.

What does the terminal buying advantage measure?

In the detailed mode it grows the same present-value cost difference to the comparison end date. It is not an additional benefit to add to that difference.

Prepared by Finflo. See our methodology and editorial policy. Read the relevant professional-advice limitations.

Rent vs. Buy Calculator

Your inputs