By purchasing a home, you are moving in the direction of increasing your financial security; you are actually taking part in an investment that can appreciate similar to stocks or bonds. When you first purchase your home, your down payment is your only stake. With adequate maintenance, a home will usually increase in value each year. And, of course, improvements to make the home more comfortable for you, will typically also add to the equity. Equity is the difference between the market value of the property and the amount of the mortgage.
Probably the biggest advantage, though, is the fact that the principle you pay on the mortgage is like putting money in the bank, in the form of equity.
Since interest rates on home equity loans are generally lower than interest rates on most other types of loans, many people use home equity loans to pay down short-term, higher-interest debts, resulting in a savings for the homeowner. Another advantage of doing this is that interest paid on home equity loans is usually tax deductible.
Like any investment, the real estate market fluctuates. However, if you're in it for the long term, the value of your property is likely to appreciate over time, and contribute to your overall wealth.
When you purchase a home with a fixed-rate mortgage, except for relatively minor adjustments due to rising costs of insurance or property taxes, your payments will remain the same over the entire life of the loan, even as the housing market fluctuates. As a renter, you would be likely to see rent increases in the range of 4% to 6% per year. Such annual increases would result in rental rates that double every 12 to 18 years. Clearly, owning your own home can result in significant savings.
One possible use for all these savings could be to make additional principal payments and therefore build equity in your home even more quickly.
Another benefit of building this equity is that it can help you make home improvements, invest in other properties, trade up to a nicer house, or finance major purchases such as a college education or a new car.
Tax Benefits of Home Ownership
While accurate at the time of this writing, it is critical that the borrower verify the information provided regarding tax benefits with either the Internal Revenue Service or an accounting professional for advice on your particular tax situation.
When tax time rolls around, you have the benefit of being able to deduct the interest paid on the mortgage throughout the year, and if you have paid discount or origination points, you are able to deduct these as well.
When you decide to sell your home you probably won't have to pay tax on the proceeds (assuming it's your primary residence). If you've lived in your house for two of the past five years, up to $500,000 (if you're married and filing jointly) or $250,000 (if you're single or married and filing separately) of your profit from the sale of your principal residence will be tax-free.
Clearly, owning your own home can be an excellent investment and a great way to increase your overall wealth.