Use this calculator to find out whether renting housing or buying it will be cheaper. The calculator looks at the total cost of homeownership and your ability to pay. On the side of mortgages, it looks at property tax and insurance, mortgage interest tax deductions, home appreciation or depreciation, years of ownership, and the mortgage term you will choose. On the side of rent, it looks at rent increases over time. In order to show the value of money in the future, the calculator also takes inflation into account. The calculator shows you how much you will pay each month renting and owning. Finally, the calculator lets you know whether renting or buying saves you more, and by how much.
Purchase price: the amount you pay for the house itself, as well as any closing costs or fees.
Loan Amount: the amount you include in the mortgage (also called the mortgage principal). Some people include everything--the entire cost of the house, closing costs, and fees--while others choose (or are required by the bank) to make substantial down payments and pay all costs upfront.
Loan Term: the term of the mortgage, usually 15 or 30 years.
Interest Rate: the interest rate of the mortgage you will take out. Keep in mind that if your credit isn't great, you probably will pay more than the rates you may see advertised.
Home Appreciates At: enter as a percentage the rate at which you expect the home to increase in value (appreciate) or decrease in value (depreciate) each year on average. If you think your house will lose value while you own it, put a hyphen before the number to make it negative. Of course, this is the trickiest part of the equation. If anyone really knew whether and how much real estate would change in value they'd dominate the real estate market. The longer you will own your home, the more likely that its value will go up, on average, over time. In the short term, the value may go down if the market drops. Indeed, in some parts of the United States, property values have already dropped quite a bit from the highs of early 2005.
Sell Home In: enter the number of years after you buy the house that you will sell it.
Property Taxes: enter the annual property tax bill for the property as a dollar amount. Of course, this number can change over time, but it's reasonable to use today's figure.
Home Insurance: enter the cost of buying homeowner's and any other home insurance for one year.
Monthly Rent: enter the rent you are now paying or that is generally being charged in your market.
Rent Increases By: enter the percentage you think rent will go up on average during the time period you already indicated. Of course, rents can go down, particularly in a collapsing real estate market. But, in general, rents do not come down as much or as often as property values do, so you can reasonably expect rents to go up on average.
Marginal Tax Rate: enter the tax rate of the highest tax bracket to which you belong.
Inflation Rate: enter the percentage you expect inflation to rise each year on average while you own the home. Of course, if anyone could predict future inflation rates, he or she would get very, very rich from dominating financial and other markets. You will just have to make a guess in order to get an idea of how inflation can impact this decision. Two percent is a reasonable number. While it is possible for this number to be negative (deflation rather than inflation), in reality, this almost never happens in the USA, at least not for any significant length of time.