Rent vs Buy Calculator

How does a rent vs buy calculator work?

This rent vs buy calculator compares the costs of buying and renting a home to determine which option is cheaper for you. For the calculator to work, you need to enter information about:

1. Your financial position (savings, investment return etc.)
2. Rental details (rent amount, repayment frequency, and % yearly rent increase).
3. Home loan details (property value, upfront costs, loan amount, loan interest rate, etc.)

The rent vs buy chart within the calculator visually graphs the difference between what you would save by renting and what you would generate in equity over the same 30-year period. Below the chart, you'll get a summary of which option is better and by how much.

When is it better to rent or buy a home?

For the same property over a 30-year period, it's almost always cheaper to buy with a home loan than to rent. Although going through a mortgage broker and putting down a deposit against the purchase price has a higher upfront cost, you will begin building equity that, over the decades, will be worth far more than what you save by renting.

While taking out a home loan makes the most long-term financial sense, there are other factors to consider when choosing to rent or buy property. If you're not prepared to settle down in one place and commit your savings to a mortgage, then renting may be better for you.

Keep reading to learn about the advantages and disadvantages of each option.

Advantages of renting

• More financial freedom: Instead of putting all your savings towards a deposit and the myriad of other costs associated with homeownership, renting allows you to keep your savings to invest in other things. This could be study, travel, or anything else that you want to invest in.
• Greater flexibility: When renting, you can easily relocate to another residence in a different area once the lease expires. This gives you more flexibility when you need to change your living arrangements since buying and selling property is a much slower process.

Disadvantages of renting

• Renting is more expensive in the long run: Because of inflation, the cost of renting continues to increase and remains more expensive in the long term than buying. Although your home loan repayments might initially be more expensive than renting, they will eventually become cheaper as you pay off the principal sum. You can eventually pay off a mortgage, but you'll always have regular repayments to consider if you rent.
• Don't build equity: Paying back a mortgage is like having an automatic savings account - a portion of your repayments is going towards your ownership of an asset (the property) that is likely to increase in value over time. If you're only renting the property, then the money you give your landlord won't contribute towards anything other than maintaining the lease.

Advantages of buying

• Security and stability: Buying a home gives you peace of mind that a landlord won't suddenly evict you. You have far more rights as a homeowner than a tenant.
• More lifestyle freedom: Buying means you have the freedom to renovate and redecorate the home. This covers everything from driving a nail into the wall to hang a picture, repainting a bedroom, or adding an entirely new area to the property like a pool, shed, or granny flat.
• Grow a long-term investment: Historically, residential property increases in value over the long term. This means you will most likely be able to sell your home at a profit or use the equity to make other investments.

Disadvantages of buying

• Interest rates: Depending on whether you have a fixed or variable interest rate, the amount of money you pay back on top of the loan principal can be quite significant. Make sure you pay attention to the interest rate when buying a home so that you're aware of how much your mortgage will really cost.
• Your money is tied up in the property: For most people, owning a home means that all their savings + other assets go towards that investment. Taking out a home loan can mean you miss out on other investment opportunities that your savings could have gone towards.‍
• Other fees: Buying a home means more than just paying a deposit and monthly repayments - there's a myriad of other fees that accompany it like stamp duty, conveyancing costs, establishment fees, mortgage insurance, and more.

How accurate is this calculator?

This rent vs buy calculator operates on a series of assumptions, including:

• Results are not adjusted for future inflation.
• Tax implications of buying and renting are not taken into account.
• Savings/investment return, rent increase, ongoing cost increase, and home appreciation are calculated and compounded yearly.
• Home loan repayments include both principal and interest, which is determined by compounding monthly.
• When renting, a year consists of 26 fortnights and 52 weeks, counted as 364 days.

Based on these assumptions and the information you provide; this calculator will give you an estimate of how much better off you will be by renting or buying the property.