Rent vs. Buy Calculator: Our Assumptions
For most of the numbers, we looked at national averages over the past 15 years.
Rental Market
For rent, we found a national average of 3% yearly increases, so we assumed rent prices would keep going up at that same rate into the future.
Real Estate Values
For year-over-year increases in home value, we found a national average of 3.5% (according to the Case-Shiller Home Price Index). Yes, you could make a fortune on a house whose value might shoot skyward. But the vast majority of home prices in the U.S. increase only a little faster than inflation.
Inflation
For the past 15 years, inflation was low — 2.2% yearly. We used this number to calculate future costs like home maintenance.
Property Taxes
For property taxes, we assumed taxes equal to 1.5% of the home’s value, which is the national average.
Mortgage Interest, Insurance, and Tax Deductions
In calculating “costs,” we included the interest on your mortgage, but not the principal. For taxes, we included any mortgage tax deduction that exceeded the standard deduction. We also assumed that your tax filing status was “single” (no offense!).
We also factored in private mortgage insurance. If you’re unfamiliar, private mortgage insurance (PMI) is a special type of insurance that your mortgage lender requires you to get if you make a down payment of less than 20%. It tends to cost in the realm of $100 to $250 a month, and once you reach 20% equity of your home you no longer have to pay for it.
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