What Are the Benefits of Home Ownership?
Few things can be more satisfying than the feeling you get when you own your own home. But home ownership has substantial financial benefits as well. Here are just a few:
You’re building wealth over time.
Buying a home you can truly afford is a savvy way to build wealth. The median home price has increased every year since the National Association of Realtors began tracking the trend in 1968. Generally, home values increase annually at the rate of inflation, plus one or two percent.
You’re building home equity month after month.
“Home equity” is the value of your home, less the amount you still owe on it. Every monthly mortgage payment that you make increases your home equity. And in the later years of your mortgage, you’ll build equity faster. That’s because the principal portion of your mortgage payments increase over time, while the interest portion decreases. Remember, you’re not building equity if you rent!
Home equity gives you purchase power.
Many homeowners can use their home equity to obtain a loan or line of credit for big-ticket items, emergency cash or other expenses.
Mortgage interest can be tax deductible.
The interest you pay on your mortgage could be tax deductible. That can be a substantial deduction—especially during the early years of a loan, when interest payments tend to be higher. Ask your tax advisor about the deductibility of your mortgage interest.
Home equity loan or line interest can be tax deductible, too.
Ask your tax advisor about the deductibility of your home equity loan or line of credit. This type of credit typically features interest rates that are below other forms of consumer credit, such as credit cards. So you could transfer the higher-rate debt to your home equity loan or credit line and pay lower interest—plus, deduct that interest as well.
Get a capital gains exclusion.
If your home was your primary residence for more than two years when you sell it, you may not owe any capital gains taxes on up to $250,000 if you’re single or up to $500,000 if married. Again, ask your tax advisor to be sure.
The confidence of having a consistent mortgage payment.
If you choose a fixed rate mortgage, your principal and interest payments will remain the same over the life of the loan. So you’ll always know what you’re paying month after month to keep a roof over your head. Even if you choose an adjustable rate mortgage with a life-of-loan interest rate cap, you’ll still be able to calculate what your maximum payment might be. Renters typically can’t plan that far ahead and won’t know how much they’ll be paying in the years to come.