Benefits of Homeownership
June 4th, 2007 by John Thomas
There are three very attractive benefits of owning your own home: it can be a sound investment, you can have stable house payments, and there can be significant tax breaks. A sound investment is the first benefit of buying your new home. Your new home becomes an appreciating asset over time. This means that as time goes by, your house is worth more money. This in turn allows equity to build up in your property even if the mortgage amount were to stay the same. The acquired equity is the difference between the fair market value of your property and the amount of your mortgage. In the last twenty years, real estate has averaged a 5% rate of return per year. Lets look at an example of appreciation over time below:
Today you bought a house worth $100,000 with a rate of 5% appreciation every year.
| Length of Time | Appreciation | Value of Home |
| Now | 5% | $100,000 |
| After 1 year | 5% | $105,000 |
| After 2 years | 5% | $110,250 |
| After 3 years | 5% | $115,762 |
| After 5 years | 5% | $127,628 |
| After 10 years | 5% | $162,889 |
Looking at the chart, you can see that even if you paid $15,000 more than the house is worth ($115,000), over time you will still make money. So even if your house goes down in value for a year or two after you bought it, over time it will go back up and keep appreciating.
The second biggest benefit to owning your own home is that you can choose to have stable house payments by having your mortgage payment fixed. If you elect to obtain a 30-year fixed rate mortgage then your payment will be the same every month for 30 years. But if you were renting instead, your monthly housing payment would probably go up every year by 5% because the landlord is going to raise the rent each year.
The third big benefit of owning a home is that you can now take advantage of some unique tax deductions that you are not allowed if you are renting. The Federal Government will pay you to own a home. You can deduct the interest on your mortgage up to 1 million dollars as well as the property taxes. This can be a significant savings. The amount of the deduction depends on your current tax bracket. You can also sell your house and take the profit from the sale tax-free as long as you lived in the home as your primary residence for two of the last five years. Your profit is tax free up to $250,000 for a single person and $500,000 for a married couple.
I am a Delaware native who has been actively involved in the Mortgage and Finanace industries for over 10 years