Investing in Your Home
Owning a home is the American dream and there’s good reason for this. Beyond basic shelter, home ownership offers stability against fluctuating rent or having to move when you don’t want to. Homeowners also have lots of freedom fixing up their homes inside and out, except for rules in historic districts and homeowner associations.
There are also financial benefits to home ownership. You have control of your monthly mortgage payment and a sizable amount of this money becomes owner equity that you will get back when you sell your house.
That’s why home ownership is a great tool for building your retirement nest egg. You have to write that mortgage check each month or pay penalties. That means you’ll consistently save money each month, as the amount of your mortgage called principal turns into homeowner equity.
Calculating Your Home’s Investment Value
Monthly mortgage payments are a combination of living costs (interest) and savings where you’re paying off your loan balance. Each month you pay less interest and more principal until one day (don’t we all dream about this) your loan is paid off and you truly own your house.
So what are the financial benefits to having a mortgage?
- Your mortgage includes principal which is effectively savings.
- Mortgage interest is deductible, so it can reduce how much income tax you pay.
- Your home appreciation is based on the full price of your house, not just your down payment. If you buy a house for $500,000 and put 20% down, you’re investing $100,000. Where you might earn 8% in the stock market for investing $100,000, if your home appreciates 2.5%, you’ll add $12,500 in homeowner equity (home value of $500,000).