For decades, homeownership has been an American ideal and sought after by many people as a sign of stability, success and independence.  There are many benefits of purchasing a home instead of leasing, starting with the much wider selection of homes that will be available to you as a buyer as opposed to as a tenant.  Furthermore, as a homeowner, you will be able to make improvements to your home to make it a nicer place to live, all of which will actually benefit you - the homeowner, as opposed to solely benefiting your landlord.  There are, however, some benefits of homeownership, particularly in our current housing market, that are not as readily apparent.

Today's extraordinarily low 30-year fixed mortgage interest rates (currently hovering around 4.25%) give home buyers the opportunity to lock in their housing costs for the future.  If you are purchasing a home in today's market, you can secure a fixed housing cost for years to come at some of the lowest mortgage interest rates we have seen any time in the past several decades.  Purchasing a $250K house with a 20% down payment and with current interest rates (4.25%) will result in $984/month in principal and interest.  When rates increase to 5.25%, that payment will increase $120 to $1,104/month.  When rates eventually increase to 6.25%, that payment will increase $247 to $1,231/month.  Purchasing a home (now or soon) will allow you to lock in low monthly housing costs on into the future.

When deciding whether to purchase a home or rent a home, it is also important to remember that one dollar of a mortgage payment is not equivalent to one dollar of a rent payment.  The interest that you pay on your mortgage is tax deductible, making a $1,000 rental payment more expensive than a $1,000 mortgage payment once tax time comes each year.  Your $1,000 per month mortgage payment is likely to include around $7,200 of interest paid in the first year ($215K purchase price, 20% down payment, 4.25% interest rate).  If you are in the 25% tax bracket, then paying this $7,200 of mortgage interest will result in tax savings of $1,800 over the course of the year.  That then means that your $1,000 mortgage payment is only an effective payment of $850 per month – much more affordable than the supposedly equivalent $1,000 per month rental payment.

Given the option of paying $1,000 per month towards your own mortgage or in a rental payment, it is also important to note that you can either be contributing to your own retirement (or savings) plan or to that of your landlord.  Over the first five years of this $1,000 per month mortgage payment ($215K purchase price, 20% down payment, 4.25% interest rate) you would have paid over $15,000 towards the principal balance of your mortgage.  Thus, just by paying your mortgage payment each month, you have accumulated $15,000 of savings.  Looking at the first ten years of this mortgage, you would have accumulated over 35,000 of savings.  Of note – this does not even account for the potential increases in the value of your home over time.

Homeownership is not for all people at all times in their lives, but there are many benefits of owning (and thus purchasing) a home both in the short term and long term.  Many of those benefits are immediately apparent, but some require a closer look at the overall financial impact of making a home purchase.

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Have any questions? Contact Scott Rogers at 540-578-0102 or scott@funkhousergroup.com