How does mortgage interest work over time?

Mortgage interest is front-loaded: in the early years of a 30-year mortgage, the majority of each monthly payment goes toward interest rather than principal. For example, on a $400,000 loan at 7%, roughly 83% of your first payment is interest. By year 20, that flips. This is why buying and selling within 2–3 years often results in very little equity built — most of what you paid went to the bank, not your net worth.

Should You Buy or Rent?
Find Your Break-Even Year.

Q: What is a good mortgage interest rate?

A 'good' mortgage rate is relative to the current market. Historically, rates below 4% (seen in 2020–2021) were exceptionally low. Rates in the 6–8% range are more typical over the past 30 years. The lower your rate, the faster the break-even point with renting, and the less total interest you pay. A 1% difference in rate on a $400,000 loan can mean over $80,000 in additional interest over 30 years.

Property

Home Price $450,000

Down Payment 20%

Annual Appreciation 3.5%

Selling Costs 6%

Mortgage

Interest Rate 7.0%

Loan Term 30 yrs

Property Tax (annual) 1.2%

Maintenance (annual) 1.0%

Rent & Invest Alternative

Monthly Rent $2,200

Annual Rent Increase 3.0%

S&P 500 Return 10.5%

Summary

Monthly PITI

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Total Interest

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Home Value (30yr)

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Net Equity (30yr)

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Principal vs Interest (cumulative)

Principal — Interest —

SELL AT YEAR 5 Exit Strategy Analysis

drag the line on chart · or use scrubber below

🏠 Buy & Sell

Sale Price—

Selling Costs—

Loan Payoff—

Gross Proceeds—

Down Payment (out)—

Mortgage Paid—

Tax + Maintenance—

Net P&L (buy)—

📈 Rent & Invest S&P

Down Payment → S&P—

Monthly Savings → S&P—

Total Rent Paid—

S&P Portfolio Value—

Net P&L (rent)—

Break-even year—

Annualised ROI (buy)—

⚖️ Head-to-Head

Buy gross proceeds—

Rent S&P portfolio—

Buy net P&L—

Rent net P&L—

Buy advantage—

Cumulative rent paid—

Owner total out-of-pocket—

At year — — buy vs rent advantage

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Exit Year 5

The real question isn't just "can I afford it?" — it's whether buying a home beats renting and investing the difference in the stock market. Our interactive calculator shows you the exact year buying wins, how much home equity you build, how much total interest you pay, and what your down payment would be worth in the S&P 500 instead.

Guide

How to Use This Calculator

This tool models the full financial picture of buying a home versus renting and investing — not just your monthly payment. Here's how to get the most out of it.

Enter your home price & mortgage details

Set the home price you're considering, your expected down payment percentage, current mortgage rate, and loan term. The calculator defaults to a 30-year fixed at 7% — adjust to match current rates or quotes you've received.

Set your rent & investment assumptions

Enter what you'd pay in rent for a comparable home. The calculator invests your down payment and any monthly savings from renting into the S&P 500 at your chosen return rate — the default is the historical average of ~10.5% annually.

Drag the exit line to your target year

On the Exit Strategy tab, drag the white dashed line to the year you'd plan to sell. The panel below instantly shows your gross proceeds, S&P portfolio value, net P&L for both scenarios, and which one wins at that exact moment.

Find your personal break-even year

The purple dot on the chart marks the break-even year — the first year buying produces more cash than renting and investing would have. Before this point, renting wins. After it, buying pulls ahead. Plan your timeline accordingly.

Key Insights

What the Numbers Actually Mean

The Front-Loading Problem

In the early years of a mortgage, the vast majority of your payment goes to interest, not equity. On a $450,000 loan at 7%, your first monthly payment of ~$2,994 includes roughly $2,625 in interest and only $369 in principal. You're not building equity fast — you're paying the bank.

This is why buying and selling in 2–3 years is often a financial loss even if the home appreciated. Selling costs (typically 5–7%) can wipe out the thin equity you've built. The "Equity vs Interest" chart tab shows this clearly year by year.

The Opportunity Cost of Your Down Payment

A 20% down payment on a $450,000 home is $90,000. That's $90,000 that could have been invested. At the S&P 500's historical ~10.5% annual return, that $90,000 becomes roughly $250,000 in 10 years and $700,000 in 20 years.

This is the hidden cost of buying that most calculators ignore. Our rent vs buy comparison always puts this capital to work in the stock market alternative, so you see the real opportunity cost of tying up your down payment in home equity.

When Buying Wins: The Long Game

Buying tends to beat renting once you hold the home long enough for appreciation and forced savings to overcome the early interest burden. In most markets, this break-even occurs between years 5 and 10. In expensive cities with high price-to-rent ratios, it can stretch to 12–15 years.

Additionally, buying provides leverage — a 3.5% annual appreciation on a $450,000 home growing to ~$650,000 over 10 years represents a large nominal gain relative to your $90,000 down payment, even after accounting for interest paid.

Total Cost of Ownership Goes Beyond the Mortgage

Your monthly mortgage payment (PITI) is just the beginning. Property taxes typically add 1–2% of home value per year, and maintenance costs average another 1% annually — rising with the age of the home. A $450,000 home could cost an additional $900–$1,800/month beyond principal and interest.

Our calculator includes property tax and maintenance in the true ownership cost calculation, which is why the "Net P&L" figure for buying is often lower than people expect — especially in the first 5 years.

FAQ

Frequently Asked Questions

Everything you need to know about the rent vs buy decision and how this calculator works.

How long do you need to stay in a home before buying makes financial sense?

The break-even point — when buying becomes financially better than renting and investing — typically ranges from 4 to 10 years depending on your local market, mortgage interest rate, home appreciation, and how rent compares to your monthly payment. In high-cost cities with low appreciation, it can take 7–10 years. In appreciating markets with competitive rates, it can be as short as 3–4 years. Use the exit strategy simulator above to find your exact break-even year based on your specific numbers.

Is buying a home always better than renting?

No — buying is not always better than renting. If you invest your down payment and any monthly savings from renting in a broad index fund (historically averaging ~10% annually in the S&P 500), renting can outperform buying financially in the short to medium term, especially when home appreciation is slow, mortgage rates are high, or rent is significantly cheaper than the cost of ownership. Buying typically wins over the long term (10+ years) due to forced savings, leverage, and the eventual payoff of the mortgage.

What costs are included in the true cost of buying a home?

The true cost of homeownership includes: your down payment, all monthly mortgage payments (principal + interest), property taxes (typically 1–2% annually), homeowner's insurance (~0.5–1%), maintenance and repairs (typically 1% annually), HOA fees if applicable, and selling costs when you exit (agent commissions + closing costs, typically 5–7% of sale price). Our calculator accounts for property tax, maintenance, and selling costs in the exit analysis — giving you a realistic net P&L rather than a simplified picture.

How does mortgage amortization work and why does it matter?

Mortgage interest is front-loaded through a process called amortization. In the early years of a 30-year mortgage, the majority of each monthly payment goes toward interest rather than paying down your principal balance. For example, on a $360,000 loan at 7%, roughly 83% of your first payment is interest. This ratio gradually shifts over time — by year 20, more than half goes to principal. This is why the "Equity vs Interest" chart shows a slow equity build in early years and why selling within 2–3 years often results in very little equity gained relative to total payments made.

What happens to my down payment if I rent instead of buy?

If you rent instead of buying, your down payment stays liquid and can be invested. Historically, the S&P 500 has returned approximately 10–11% annually over long periods (though with significant year-to-year volatility). Our calculator models this directly: it shows how your down payment — plus any monthly savings from lower rent costs — would compound in the stock market versus being tied up in home equity. You can adjust the S&P return slider to model conservative (6–7%) or optimistic (12%+) scenarios.

What is a good mortgage interest rate?

A "good" mortgage rate is relative to the current market environment. Rates below 4% (seen in 2020–2021) were historically exceptional. The 6–8% range is more typical looking at 30-year averages. A 1% difference in rate on a $360,000 loan can mean over $65,000 in additional interest over 30 years and moves the break-even point with renting by 1–3 years. Use the interest rate slider to see how sensitive your break-even year is to rate changes.

How accurate is this calculator?

This calculator uses standard mortgage amortization formulas and compound growth models. The results are financially accurate given the inputs provided. However, they are projections based on assumed constant rates of appreciation, rent growth, and investment returns — real-world outcomes will vary. The calculator does not account for tax deductions (mortgage interest deduction, capital gains exclusion on primary residence), HOA fees, or inflation adjustments. It is intended as a planning and comparison tool, not financial advice.