One of the most significant decisions you can make in your life is that of purchasing a home. You may wonder if your decision to buy a home is right. Should you not rent a home instead? Many people tend to think that renting a home is cheaper than buying. However, in the real sense, it is much less expensive to buy a home than to rent. Here are some reasons why you may save money by purchasing a home instead of renting:
Owning a Home is an Investment
Purchasing a vehicle or another asset that depreciates with time is not an investment as it has no return on investment. However, a home is an asset that will appreciate in value over time. Even in the times of recession, the national median home prices continue to rise. Your debt amount will go down as you continue to pay your mortgage every month. However, the value of your home will keep growing. Eventually, your home will give you a substantial return on investment. With rent, however, you continually pay rent, and you will not gain ownership of the house. Periodically, your landlord will raise the rent amount, making you incur more expenses.
You Gain Equity
With homeownership, investment, and equity go hand in hand. As you make mortgage payments every month, part of the installment pays the interest, and the other part lowers the principal amount. To get your total equity, you take the amount outstanding from your home loan and subtract it from the full value of your home. The result you get is the dollar value or the equity of your home. You can always meet a variety of your financial needs by borrowing against your equity. You can still borrow against your equity to invest in the home or a new home.
Homeownership encourages economic growth. It is for this reason that the federal government supports homeownership. The government offers tax incentives for homeowners. The most significant incentive is the option to deduct interest from mortgage payments on your income tax returns. This incentive is particularly beneficial at the start of a mortgage; at this time, most of the mortgage payment goes to interest. The tax incentives can put a significant amount of money in your pocket.
Stable Monthly Payments
If you buy a home using a mortgage, you are likely to get a fixed-rate mortgage which is the most common type of mortgage. With a fixed-rate mortgage, you will enjoy stable monthly payments. With renting a property, however, you do not know what the future holds. The rent per month may go high with the changing economy making you pay more money for your rented home.
Initially, the costs of buying a home may seem higher than the costs of renting. The initial costs of owning a home include the down payment, home insurance, and appraisal fee. However, in the long run, owning a home turns out to be cheaper than renting. In many cities across the world, the cost of owning a home is much cheaper than renting.