Advantages of Homeownership
Becoming a homeowner comes with a lot of responsibility, but also a lot of rewards. To help you decide if owning a home makes the most sense for you, here are some of the main reasons people choose homeownership over renting.
Homeownership Can Be A Good Investment
While home prices move in cycles over the short-term, if you stay in your home for a long time, it could increase in value and give you a substantial return on your investment.
If you are currently renting a home or apartment, use Discover's Rent vs Buy Calculator to help determine which option provides the most economic benefits for you over the time you plan to be in your residence. When using the calculator, be sure to include some assumption about future increases in your rent, as most landlords periodically raise rents.
You Build Equity
When you subtract the amount you owe on your home loan from the total value of your house, the amount left over is your home equity-the “dollar” value of your home that actually belongs to you. There are two ways to build equity:
- With each monthly mortgage payment you make, a portion goes toward reducing the amount you owe on your loan, which increases your equity. In a sense, paying your mortgage is a form of savings, as it increases the equity in your home.
- As your home's value increases, it creates more equity for you.
In a sense, paying your mortgage is a form of savings, since it increases your home equity which you may be able to tap into if you need money in the future.
When necessary, you can borrow against your home equity to meet a variety of financial needs, including home improvements, education or medical expenses. A home equity loan or line of credit can also be used to pay off high interest credit card debt, since the interest rate is generally lower and the interest payments may be tax deductible (see your tax advisor for a determination). Read our Cash Out Refinance article for more information on how you can one day access the equity that you build in your home.
You Enjoy Significant Tax Deductions
Owning a home can reduce the amount you pay in income taxes each year. Your mortgage interest and property tax payments under certain circumstances may be deductible from your federal taxes, as well as many state taxes. Certain closing costs and loan discount points also may be tax deductible1. In the early years of your mortgage, when interest represents the bulk of your monthly mortgage payment, these potential tax deductions can put a significant amount of money back in your pocket. Consult with your tax advisor to determine if your particular mortgage situation permits tax deductibility.