Renting vs. Buying: The Real Break-Even Math, Not the Rule of Thumb

Everyone has a rule for this. Five years and you should buy. Renting is throwing money away. If the price-to-rent ratio is under 20, buy — over that, rent forever. Rules like that exist because most people don’t want to do the math. You’re going to do the math. It takes fifteen minutes, it uses numbers that are true right now, and it gives you an actual year instead of a slogan.

The Rule of Thumb Everyone Repeats

The price-to-rent ratio is a home’s price divided by what a year of renting it would cost. It’s a real, useful screening tool — and it’s not a verdict. Depending on whose home-value and rent data you use, the national figure right now sits somewhere between about 16 and 20. Under roughly 15, buying tends to win outright. Above roughly 20, renting usually wins on pure monthly cost. Everything in between — which is where most of the country actually sits, national average included — is a toss-up the ratio can’t settle for you. If someone tells you “the ratio says buy” or “the ratio says rent” without naming a number, they’re repeating a headline, not doing math.

The five-year rule has the same problem. It’s a guess that got repeated so often it started sounding like a law. Your actual break-even point depends on your mortgage rate, your closing costs, your down payment, and how fast your local rents are climbing — none of which the five-year rule knows anything about. It might be right. It might be off by two years in either direction. You don’t find out by trusting it.

What a Real Break-Even Calculation Actually Needs

A real calculation needs nine inputs, not one ratio. Purchase price. Down payment. Mortgage rate — 30-year fixed rates are currently running about 6.6%–6.7%, per Freddie Mac’s Primary Mortgage Market Survey (6.69% for the week of August 6, 2026). Closing costs — typically 2% to 5% of the loan amount, with the CFPB’s most recent published figures putting median total loan costs at roughly $6,700 as of 2023 — a number that excludes transfer taxes and prepaid escrows, so treat it as a floor rather than an all-in total. Property tax, homeowners insurance, and maintenance — the standard planning shortcut is to budget about 1% of the home’s value per year for maintenance alone. The rent you’d otherwise be paying for a comparable place. A realistic rent-growth assumption. A realistic home-appreciation assumption. And the cost of eventually selling. That’s typically 8% to 10% of the sale price between agent commissions and closing costs, which most online rent-vs-buy calculators quietly leave out entirely.

Leave out selling costs and appreciation and you’ll get a number that flatters buying every time, because a mortgage payment “feels” like it’s building equity from day one. It isn’t. In the early years of a 30-year loan, most of the payment is interest, not principal. That’s exactly why the break-even point is further out than people assume, and exactly why it’s worth calculating instead of guessing.

The Break-Even, Worked Through

Here’s one full illustrative scenario, with every input stated so you can swap in your own numbers. $400,000 purchase price, 20% down ($80,000, so no PMI), a 30-year fixed loan at 6.65%, 3% closing costs ($12,000), 1% of home value per year each for property tax and maintenance, $1,800/year insurance, and a comparable rental at $2,000/month. That’s a roughly 16.7 price-to-rent ratio, squarely in that national toss-up range. Rent is assumed to grow 3% a year. The home is assumed to appreciate 3.5% a year, a conservative long-run planning number, not a forecast. Selling costs are set at 9% of the home’s value whenever it’s sold. That’s the midpoint of that 8%–10% range, not the optimistic end.

Illustrative example, not a forecast for any specific home or borrower. Every input above is stated so you can replace it with your own price, rate, rent, and timeline. “Net cost of owning” is total cash outlay minus what you’d walk away with if you sold in that year, after paying off the remaining loan balance and 9% selling costs. It does not add in what the down payment could have earned invested elsewhere. In this scenario, break-even lands between year five and year six — call it about five and a half years.

What Moves Your Break-Even Point

Three things move this number more than anything else, and none of them are exotic. A higher mortgage rate pushes the break-even point out, because more of every payment goes to interest instead of principal for longer. A local price-to-rent ratio above the national range pushes it out further still. And a shorter time horizon beats the math regardless of the rate: if you’re not staying past the break-even year, the ratio and the rate don’t matter, because you never get there.

Here’s the part that isn’t about spreadsheets. The math above assumes you’d actually invest the difference if you rented instead of buying. That’s the gap between a $2,871 monthly ownership cost and a $2,000 rent payment, put into an index fund instead of a down payment. Most people don’t do that. They spend it. If you’re the kind of person who’d let that gap disappear into daily spending instead of an account you don’t touch, the “rent and invest the difference” argument you hear from finance blogs stops applying to you specifically, no matter how good it sounds in the abstract. Know which kind of person you actually are before you pick a side — the math only helps the version of you who’ll follow it.

This is general information, not personalized financial advice. Consult a licensed financial advisor before making investment or financial decisions specific to your situation.