So you think you want to be a homeowner huh? Here are 6.5 benefits/advantages of using a mortgage for owning your own home from a financial perspective (and when I refer to a home, I’m referring to a place to live whether it be single family, a condo, a town home, etc.). There are more benefits to investment real estate, but I’ll save those for another post.
1. Appreciation–The value of your home is one of those special investments that typically increases in value as it gets older. There are short term declines (especially in the last 6-7 years) , but over the long haul, the amount of money that a home is worth increases.
2. Cheap Money–If you’ve ever needed access to cash you may have opened up a credit card or a personal loan. The rates on these types of debts range from 12%-35%. That’s extremely expensive money in my book. Contrast those with a mortgage loan and where interest rates are currently in the 3%-5% range…it’s a no brainer.
3. Mortgage Interest is Tax Deductible–As you’re income grows, you’ll realize that you have fewer and fewer tax shelters. Mortgage interest may be the single biggest write off you have.
4. Mortgages are Tax Favorable–Mortgage interest is tax deductible, but so are points paid on financing the mortgage, property taxes you may pay, and mortgage insurance you may be carrying. This means that you don’t have to give the government as much as you thought you did!
5. Sell Without Selling–A mortgage can be refinanced, essentially, selling without selling. Meaning you can change your term on the money you owe, you can change the interest rate on the money you owe, or you can consolidate high interest debt to low interest (tax deductible) debt.
6. Leverage–You can purchase a home with as little as 3% down using an FHA mortgage. That means if you have decent income, but are short on savings, you can get into a home. Put simply another way, you can borrow 97% of the money you need as long as you have the ability to pay it back. No other investment offers that type of leverage.
6.5. Liquidity and Flexibility–If you put too much money into your home, you lose the liquidity factor. In other words, its easier to access money from paper assets than it is to access money in real estate. So by carrying a mortgage you are more liquid with any money you may have as investment vehicles.
It’s undeniable that there are great benefits to home ownership for the underage investor. A savvy young person, would buy real estate, with as little cash as possible, and then rent out the rooms to his/her friends. They would have a place to live while their friends made the mortgage payment. They would build equity without having to make a full mortgage payment by themselves and hopefully have an asset to sell once they were reading to move on.
How about you? What benefits can you think of for home ownership?