Understanding the calculation
Monthly constant-payment loan repayments use nominal annual interest divided by 12. The down payment and upfront costs leave the buyer’s portfolio; the renter keeps all starting capital. Each month both have a budget equal to the higher housing cost, and the cheaper option invests the difference at month end. Portfolios grow at the monthly equivalent of the effective annual return. Buyer net worth adds financial assets and property net of debt and sale costs; renter net worth is the portfolio. Housing outflows exclude investment contributions.
Buying net worth = portfolio + property value × (1 − sale cost %) − debt. Difference = buying net worth − renting net worth.
Worked example
Fictional EUR example over one year: price 120,000, down payment and starting capital 20,000, interest-free 100,000 loan over ten years; rent 1,000 monthly. With no other costs, appreciation or investment return, the payment is 833.33 and the buyer invests 166.67 monthly. After one year debt is 90,000, property equity 30,000 and the portfolio 2,000: total 32,000 versus the renter’s 20,000. The difference is 12,000; housing outflows are 30,000 and 12,000 respectively.
Assumptions and limits
Figures are assumptions, not current prices or returns. Annual ownership costs stay constant; rent changes every twelve months. Sale is assumed at each displayed horizon. Capital-gains taxes, investment fees, deposits and rate changes are not modelled. The common monthly budget equals the more expensive option and does not prove affordability. Sensitivity varies one assumption at a time.
Questions about this tool
Why is a mortgage payment different from rent expense?
A payment includes interest and principal repayment. Principal reduces debt and increases property equity. Interest and expenses do not create that increase.