In Part One and Two of this blog series we explored low mortgage rates, rising rent and what it could cost if you wait even another year to buy a home. Today, in the final post of this series, we examine benefits of homeownership and how it can lead to an improved standard of life for you and your loved ones.
An article from realtor.com highlights the findings of Harvard researchers who identified that homeownership is a vital step to building wealth and provides several financial benefits:
A mortgage is a built-in savings account
Assuming you finance your home with a 30-year loan and a 5 percent interest rate, you will have paid off nearly a third after 15 years. A portion of the financing cost each month goes toward principal reduction with the share of the payment going toward principal increasing over time. This monthly investment is a forced savings and could represent a sizable amount when you reach retirement age if you purchase a home in your early 30s.
“The payment of principal as the loan ages is, therefore, a forced savings plan whose deposits are growing—without any more being taken out of your pocket,” says the realtor.com article.
Homes deliver real appreciation over time
Even with price increases and decreases, home prices still increase at a greater rate than inflation. “The Harvard study highlighted that if an owner had experienced the average gain in home prices from 1975 to 2012 as measured by a common home price index, that owner would see have seen a real, inflation-adjusted gain of 26% over 30 years.”
This means a normal home, after adjusting for inflation, will be worth 26% more than what you paid, at then end of a 30-year mortgage.
A mortgage can further increase return
“The Harvard paper used the example of a buyer putting down 5% and experiencing 4% appreciation. After five years, the house would be worth 22% more—or more than five times what the owner put down.”
Owning your own home can yield substantial tax rewards, too. For example, the mortgage-interest deduction allows you to deduct interest payments with property taxes.
Protection from rising costs
Rent will inevitably rise with inflation, but a mortgage locks in the majority of your housing costs. Your monthly payment is fixed, but due to inflation you will pay a smaller and smaller share of income on housing over time.
We hope this series helps you decide if now is the right time for you to invest in a home. We want your home buying experience to be exceptional, so we have a great team of lenders to walk you through the financing process, in addition to our in-house sales team and closing specialist who can answer any questions you may have along the way.