Buy vs. Rent Calculator

How Buy vs. Rent Calculator Works

Buy vs. rent is rarely a simple "which is cheaper" question -- a mortgage builds equity while rent doesn't, but a renter who invests what they'd otherwise spend on a down payment and ongoing ownership costs can also build wealth. This calculator runs both paths side by side over the same time horizon and compares final net worth, not just monthly cash outflow.

Formula & Method

For buying: the down payment and loan amount are computed from the home price, the loan's EMI is calculated with the standard reducing-balance formula, and the home appreciates annually while the remaining loan balance amortizes down. Net worth if buying is the appreciated home value (minus selling costs) minus whatever loan balance is still outstanding at the end of the horizon. For renting: the down payment plus one-time buying costs (what the renter would have spent) are invested at your chosen return rate, and every year the difference between that year's total buying cost (EMI plus property tax, maintenance, and insurance) and that year's rent is either added to or drawn from that same investment pool, compounding for the years remaining. Property tax, maintenance, and insurance are calculated as a flat percentage of the original home price each year, not the appreciated value, to keep the model simple and conservative.

Worked Example

With the defaults shown (₹80,00,000 home, 20% down, 8.5% loan over 20 years, 6% annual appreciation, vs. ₹25,000/month rent rising 5% a year, invested at 9%) over a 10-year horizon: buying leaves you with about ₹95.6 lakh in home equity, while renting-and-investing grows to about ₹1.18 crore -- renting comes out about ₹22 lakh ahead at these assumptions, largely because the 9% investment return on the down payment compounds faster than the 6% home appreciation over just 10 years.

Frequently Asked Questions

Why can renting come out ahead even though buying builds equity?

Equity growth depends on home appreciation, while the renter's side of the comparison depends on the investment return rate applied to the down payment and any cost savings -- when the investment return assumption is meaningfully higher than the appreciation assumption, the renter's compounding can outpace the buyer's equity growth, especially over shorter horizons before the loan is paid down.

Does a longer time horizon favor buying?

Generally yes -- as the horizon extends, more of the loan gets paid off (shifting equity from "loan-funded" to "owned"), and home appreciation has more years to compound on the full property value, whereas the renter's investment pool only grows on the initial down payment plus whatever yearly cost differences get added.

Why are property tax, maintenance, and insurance based on the original price, not today's value?

This is a deliberate simplification stated in the tool's hint -- using the original price keeps these ongoing costs from compounding on top of an already-compounding appreciation assumption, which would otherwise double-count growth and skew the comparison in favor of renting.

What does "one-time buying costs" represent?

It's a percentage of home price meant to capture costs incurred only at purchase -- registration, stamp duty, legal fees, and similar one-off expenses -- which are added to the down payment as money the renter gets to invest instead, since the renter never pays them.