Learn the major financial benefits of homeownership. Plus—4 tax saving tips for savvy buyers.
Benefit #3: Hedging Against Inflation
And speaking of prices going up, another often-overlooked financial benefit of owning a home is that it’s a solid hedge against inflation.
Consider this: If you have a fixed-rate mortgage, the price you pay to have a roof over your head can’t change—no matter what happens to interest rates or the economy. The cost of your home is locked in for the term of your loan, such as 15 or 30 years.
Even adjustable-rate mortgages come with an interest rate cap, so you know the maximum potential mortgage payment.
On the other hand, when inflation causes the price of goods and services go up, rent prices can skyrocket, which can make owning a home much more affordable when inflation rears its ugly head.
Benefit #4: Building Equity
The fourth financial perk of owning a home is that you can build equity, which is the value of a property that you actually own. For example, if your home is valued at $175,000 and you owe $100,000 to the lender, you have $75,000 in equity.
What’s really great about a fixed-rate mortgage is that each payment is made up of a principal and interest portion. With each monthly payment, you automatically reduce your outstanding loan balance by a slightly larger amount. Therefore, every payment you make means you own more of your home and owe less. This is a stark contrast to paying rent, which is a pure out-of-pocket expense.
Although real estate values can go up and down, over the long term they have appreciated. If your home value goes up at the same time that your debt goes down, that’s a really powerful combination. Owning real estate gives you the opportunity to build wealth from price appreciation, paying down your mortgage, or from both.