Financial Benefits of Homeownership As a Realtor, I am often asked about the value of owning versus renting. This article from Fairway Independent Mortgage is one of the best explanations that I have seen: When thinking about purchasing a home, there are many questions that you need to ask yourself; most of which lean towards the financial side. Buying a home is a major financial move and while there are pros and cons to everything, there are many positive financial benefits to owning your own home that everyone should know about. With homeownership comes several tax benefits that you will be able to reap. There are several tax benefits that come along with homeownership but the most valuable is that tax codes allow homeowners to deduct the mortgage interest from their tax obligations. For most homeowners this is a huge deduction since interest payments can be the largest part of your mortgage payments in the early years. In addition to your mortgage interest, you can deduct the interest you pay on your home equity loan. This tax benefit can allow you to shift credit card debts to your home equity loan allowing you to not only pay lower interest rates than your original credit cards interest rate, but also get a deduction on the interest rate. The greatest financial benefit of homeownership is that you are building wealth over time as you are building equity every month. Equity is the amount of money that you can sell your home for minus what you still owe on it. So through your monthly payments, the reduction of your home mortgage loan increases your home equity. Then as you build your home equity, you will eventually be able to use it as leverage to pay for other expenses in your life, as stated briefly above. Since home equity loan interest payments are tax deductible, for many homeowners, it makes sense to pay off other debt (bad debt, i.e.: credit cards) with your home equity loan. You will typically be able to borrow against your home’s equity for several reasons, including making home improvements, paying for education, covering medical bills, etc. However, it is very important to remember that a home equity loan is not a bottomless bank and that just because it is available, you should not necessarily use it. It is essential that you are responsible and conservative with a home equity loan; history has shown us that too many homeowners have treated their home equity loan as an endless cash flow used for lavish vacations or new cars and when home prices dropped they found themselves equity poor, swimming in debt, and in trouble. Lastly, as discussed time and time again, in the long term, buying will always be cheaper than renting, even in the worst housing market. In the first few years it may seem cheaper to rent but over time, as the interest portion of your home mortgage loan payment decreases, the interest you will be paying will eventually be lower than the rent you would have been paying. More importantly, you do not want to find yourself throwing away all the money on rent and into a landlord’s pocket, but instead find yourself putting in money and building equity in your own home. The housing market continues to stabilize and financing is becoming more available for potential homebuyers. Doug Lebda, founder and CEO of LendingTree stated, “increasing home prices are providing would-be sellers with the confidence needed to take action, while rising interest rates are placing a sense of urgency on potential home buyers. Together this creates a unique window of opportunity for buyers and sellers to take advantage of the market while home prices and rates are still reasonably affordable.” Many potential homebuyers cite that the financial benefit of owning versus renting is a main driver for their decision to purchase a home. If you have been on the fence it is time to look at your finances and contact a mortgage planner to help you understand your options and see the potential financial benefits you could be looking at.
Posted on: Sun, 21 Jul 2013 12:56:26 +0000
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