Our Buy vs Rent Calculator uses a comprehensive algorithm to compare the long-term financial implications of buying a property versus renting. Here's a breakdown of how it works:

1. Initial Costs and Assumptions

• For buying, we start with the house price and subtract the down payment to calculate the mortgage amount.
• For renting, we begin with the monthly rent you provide.
• We use the mortgage term you specify for the duration of our calculations.

2. Year-by-Year Calculations

For each year over the mortgage term, we calculate:

Buying Costs:

• Mortgage payments (calculated using the standard amortization formula)
• Property taxes (based on the current home value)
• Maintenance costs (as a percentage of the home value)
• Home insurance costs
• We factor in home appreciation, increasing the home's value each year

Renting Costs:

• Annual rent payments
• We apply the specified annual rent increase

3. Investment Considerations

We account for the opportunity cost of the down payment and the difference in monthly costs:

• For the renting scenario, we assume you invest the down payment amount and any savings in monthly costs compared to buying.
• These investments grow at the rate you specify for investment returns.

4. Final Calculation

• For buying, we sum up all costs over the years and subtract the final home value.
• For renting, we sum up all rent payments and subtract the value of investments.
• We compare these final totals to determine which option is financially advantageous.

5. Limitations and Assumptions

It's important to note that this calculator:

• Assumes constant rates for factors like home appreciation and investment returns, which can vary in reality.
• Doesn't account for potential tax benefits of homeownership, which can vary by location and individual circumstances.
• Doesn't factor in one-time costs like stamp duty or moving expenses.
• Is a financial comparison tool and doesn't consider non-financial factors that might influence your decision to buy or rent.

This calculator provides a solid foundation for comparing the financial aspects of buying versus renting, but we always recommend consulting with a financial advisor for personalized advice tailored to your specific situation.