Methodology

1. How the calculation works

Hundreds of futures, not one prediction

We don't guess the future. We run 500 versions of the next 10 years — each with different mortgage rates, home appreciation, stock returns, and rent growth, drawn from historical variance — and report the typical outcome across all of them. That's why a headline reads “you'd be $47K richer buying” rather than “buying is the answer.”

Two parallel lives

Each of the 500 runs simulates the same person living two ways, month by month:

• Buyer: takes the mortgage, pays principal, interest, property tax, insurance, maintenance, HOA, and (when down payment is under 20%) PMI. Net worth = home value minus selling cost, plus any side investment account.
• Renter: pays rent (growing with inflation), invests whatever's left of their housing budget into the stock market.

At the horizon, we compare net worth. Lead stability tells you whether one side stayed ahead across the 500 runs, or whether the lead flipped — high stability means the verdict is robust; low means small input changes flip the result.

Where the variance comes from

• Mortgage rate: starts at today's actual rate, drifts toward the 20-year average over time.
• Home appreciation: uses Zillow's 1-year forecast for your ZIP when available; falls back to long-run national averages.
• Stock returns: monthly returns drawn from S&P 500 history, scaled by your risk setting (conservative ≈ half exposure, aggressive ≈ 1.5×).
• Rent inflation: monthly growth drawn from CPI history.

2. What we model

• Amortization — 30- or 15-year fixed schedule, principal and interest split month by month.
• PMI — applied when down payment is under 20%. Rate scales with loan-to-value and credit quality, cancels automatically when LTV hits 80%.
• Property tax — your county's effective rate from US Census data, with state-average fallback.
• Federal tax savings — mortgage interest plus state/local taxes compared to the standard deduction at your marginal rate. Uses current-year brackets, the $40K SALT cap (phasing above $500K AGI), and the $750K mortgage interest deduction cap(loans above this get a proportional deduction).
• Maintenance — 1% of current home value per year by default. Bump it to 1.5–2% for older homes.
• Insurance — flat annual amount from your input. The $2,000/yr default is a national average; coastal Florida or fire-zone California typically runs $5,000–$12,000.
• HOA — flat monthly amount from your input, grows with inflation. Included in the buyer's monthly cost and affordability check.
• Refinance modeling (Pro feature) — Pro users get automatic refis along each forward path when rates drop. Free results assume the buyer keeps the original rate for the whole period, which understates buyer outcomes in falling-rate scenarios.
• Selling costs — 4% of sale price by default (breakdown below).
• Buy delay — if you defer purchase by N months, both the home price and mortgage rate at purchase come from the forecasted path at month N.

What's in the 4% selling cost

• ~2.5–3% listing agent commission (post-NAR settlement, buyer's agent is negotiated separately)
• ~1% closing costs (title, escrow, recording)
• ~0.5–1% transfer taxes (higher in NY/CA/IL, lower in TX/FL)

Bump to 5–6% if your local market still has sellers paying the buyer's agent.

3. Where the model has limits

For most users these are small effects. If any apply strongly to your situation, the headline number tilts in the direction noted.

• Capital gains on sale. Federal law excludes $250K (single) / $500K (married joint) of home-sale profit from tax. We don't model the exclusion or the tax above it. Effect: a wash for most 10-year holds in normal markets; long holds (15+ years) in high-appreciation markets understate sell-side tax by 5–15%.
• Special assessments (CA Mello-Roos, NJ school district add-ons, TX MUD taxes). Our property tax rate is county-level. If your specific ZIP carries a meaningful add-on, override the rate in Settings.
• Rent control or stabilization. Our renter's monthly rent grows with general inflation. If you're rent-stabilized (NYC, SF, LA, Berkeley), your real rent grows slower — the calculator overstates the rent side, making buying look better than it really is for your situation.
• Closing costs at purchase. A flat 3% by default. Actual costs vary by lender, title company, and state — usually 2–5%.
• Moving costs and the time cost of a mortgage application. Not modeled. Both sides of the comparison ignore them.
• Maintenance vs home age. Default is a flat 1% of home value per year. For homes 50+ years old, 1.5–2% is more realistic — bump the slider in Settings.
• Insurance crisis pricing. Default $2,000/yr is a national average. If you're in coastal Florida or fire-zone California, please override — $5,000–$12,000/yr is normal there.

4. Data sources

• Zillow Research — home values, 1-year appreciation forecast, and median rent per ZIP. Refreshed monthly.
• Freddie Mac (via FRED) — 30- and 15-year average mortgage rates. Refreshed weekly.
• FRED (Federal Reserve) — CPI for inflation, S&P 500 for stock returns, Case-Shiller for home-price variance.
• US Census Bureau ACS — county-level property tax rates; ZIP-to-county mapping.
• Personalized Summary narrative — generated from your scenario inputs by a language model, optional. All numeric results come from the simulator independently.

5. Glossary

Amortization

The fixed monthly schedule that pays off your mortgage over the term. Early payments are mostly interest, later payments mostly principal.

Capital gains exclusion

Federal rule that excludes $250K (single) / $500K (married joint) of home-sale profit from tax, if it's your primary residence and you've lived there at least 2 of the last 5 years.

CPI

Consumer Price Index — used here as the rent inflation rate.

LTV

Loan-to-value ratio. Loan balance divided by home value. PMI is required while LTV is above 80%.

Marginal tax rate

The federal income tax rate on your next dollar of income, derived from your income and filing status.

Monte Carlo

A method that runs many simulations with randomized inputs to map out a range of outcomes. We run 500 of these for each scenario — see How the calculation works.

PMI

Private Mortgage Insurance. Lenders require it when you put down less than 20%. It protects the lender (not you). We add it to monthly costs until LTV drops below 80%.

SALT

State And Local Tax deduction. Lets you deduct state income tax + property tax up to a cap. See our SALT cap entry.

ZHVI

Zillow Home Value Index. Median home value per ZIP, smoothed and seasonally adjusted.

ZHVF

Zillow Home Value Forecast. Zillow's 1-year-ahead growth forecast for home values per ZIP.

ZORI

Zillow Observed Rent Index. Median rent per ZIP, smoothed. We use it as the “typical rent” benchmark next to your rent input.