Disclaimer & Methodology

This calculator is an educational tool. It provides estimates only and is not tax, legal, accounting, mortgage, or investment advice.
Results depend on the accuracy of your inputs and simplifying assumptions described below.
Consult qualified professionals for advice specific to your situation.

How Each Input Is Used

Investment horizon & ownership outcome

• Horizon (years): Month-by-month cash flows and asset values are modeled for the selected number of years and summarized annually.
• Sell vs keep at horizon:
  • Sell: Home is sold at the modeled value, subtracting selling costs and applicable capital gains tax, then adding invested surplus.
  • Keep: Wealth is equity plus invested surplus, with no selling costs or capital gains.

Purchase & Financing

Core financing inputs

• Home price & down payment %: Determine initial loan amount.
• Loan term & mortgage APR: Monthly mortgage payments are calculated using standard amortization.
• Closing costs: Based on a % of home price.
  • If Roll closing costs into loan is checked, these are added to the principal.
  • Otherwise, they’re paid upfront at purchase.

Points (rate buydown)

• Points purchased × cost per point: Increase upfront costs.
• Points × rate reduction per point: Decrease the mortgage APR used in monthly payment calculations.
• This section is hidden by default as an advanced option, with a link to the “Points vs Down Payment” calculator for further comparison.

Mortgage Insurance Types

Conventional

• PMI: Private Mortgage Insurance is charged monthly if down payment < 20% (LTV > 80%).
• PMI automatically drops off when the LTV reaches 80% (or 78% by law).
• If down payment ≥ 20%, PMI is not applied.

FHA

• Upfront MIP: Calculated as a % of the loan amount.
  • If rolling into the loan, it increases the principal.
  • Otherwise, it’s paid at closing.
• Annual MIP: Charged monthly for:
  • 11 years if down payment ≥ 10%
  • Life of the loan if down payment < 10%
• No PMI is applied for FHA loans.

LPMI

• Lender-Paid Mortgage Insurance: No separate insurance line item.
• A rate bump is added to the APR (in basis points) and persists for the life of the loan.
• PMI and MIP are disabled in this mode.

Property Value & Taxes

• Appreciation: Home value grows at a constant annual rate.
• Property tax: Applied monthly as a % of the home’s current value.
• Selling cost: Applied as a % of sale price at the end of the horizon when “Sell” is selected.

Renting Side

• Rent & inflation: Rent increases once per year at your input rate and stays flat in between adjustments.
• Renter credits: State-level credits can reduce annual rent cost and boost renter portfolio.
• Security deposit: Deducted at purchase (month 0) and returned at horizon based on the return % entered.
  Owner invests an equivalent amount at t=0.

Taxes (Itemizing vs Standard Deduction, SALT, Mortgage Interest)

• Filing status & marginal tax rate: Used to estimate annual tax savings.
• Itemizing deductions (default: ON):
  • When itemizing is enabled, the model assumes the user itemizes for reasons beyond homeownership (e.g., charitable contributions, state income tax).
  • In this mode, mortgage interest (subject to IRS loan caps) and SALT (property tax) are fully deductible against taxable income, without comparing against the standard deduction.
• When itemizing is disabled:
  • The model compares itemized deductions (SALT + deductible mortgage interest + any entered additional itemized amount) to the standard deduction for the selected filing status.
  • Tax savings apply only to the extent that itemized deductions exceed the standard deduction.
• SALT deduction cap: $10,000 (federal).
• Tax savings are calculated annually, not monthly.

Capital Gains on Sale (Primary Residence)

• §121 Exclusion: If the property is used as a primary residence for ≥ 2 years:
  • $250,000 exclusion for single filers
  • $500,000 exclusion for married filing jointly.
• Taxable gain = max(0, sale price − basis − selling costs − exclusion).
• Capital gains tax = taxable gain × (LTCG + NIIT).
• Depreciation recapture is not modeled.

Investing the Surplus

• Each month, the model compares the total cash outflow for owning vs renting.
• If renting costs less than owning in a given month, the renter invests the difference at the expected after-tax portfolio return.
• If owning costs less than renting, the buyer invests the difference.
• These monthly investments compound over time, contributing to either:
  • the renter’s portfolio, or
  • the owner’s invested surplus.
• This approach ensures a cash-flow-neutral comparison: both renter and buyer are assumed to invest unused cash flow, not let it sit idle.

Output Interpretation

• Annual Buy: shows ownership-side cash outflows and benefits:
  • mortgage interest, insurance (PMI/MIP/LPMI), taxes, maintenance, and other carrying costs
  • tax savings, equity growth, any surplus investment, and if selling — net proceeds after selling costs and capital gains tax (if applicable).
• Annual Rent: shows renter-side total cost of rent and other renter expenses, plus the renter portfolio balance, which grows from monthly surplus investments and compounding returns.
• Surplus investment impact: each year reflects the cumulative effect of monthly surplus investing — whether the renter or buyer had lower costs in a given month determines which side gains portfolio value that month.
• Breakeven year: the year when the total wealth of owning (equity + invested surplus + net proceeds if selling) equals or surpasses the renter’s portfolio.
• Final metrics: reflect the user’s choice to sell or keep the property at the end of the time horizon, incorporating all cash flows, portfolio growth, and capital gains outcomes.

Limitations & Simplifications

• Estimates only — excludes AMT, phaseouts, depreciation recapture, and many local tax rules.
• Property tax is based on market value, not assessed value.
• Mortgage interest deduction caps are approximated.
• Rent, appreciation, and returns are modeled with constant growth.
• Moving costs, liquidity, appraisal, transaction frictions, and personal circumstances are not modeled.
• State-level tax credits, itemized deductions beyond mortgage interest and SALT, and advanced tax interactions are simplified.
• When Itemizing deductions is enabled, the model assumes that itemization would occur with or without homeownership.

Responsibility

• Your results depend entirely on your inputs and assumptions. Garbage in = garbage out.
• No guarantees about appreciation, rent inflation, or returns.
• This tool does not replace professional financial, legal, mortgage, or tax advice.

Tips for Better Accuracy

• Use realistic property tax assessments where possible.
• Include capital improvements to better estimate taxable gains.
• Adjust LTCG rates for your state when relevant.
• Run best / base / worst case scenarios for appreciation, rent growth, returns, and tax rates.
• Consider your liquidity needs, non-financial factors, and transaction costs outside this model.