The Benefits of Homeownership
Buying a home is no small feat. It is a major accomplishment that comes with a variety of benefits for the homeowner, especially during tax season. Home buying is a costly process upfront so new owners will see the majority of their benefits later down the line. Those who opt to make the investment will surely see a return on their money. Read on to see some of the top benefits that come with owning a home.
Equity = Savings
The definition of equity is the amount you can sell your home for after subtracting the balance you still owe. How does equity help you save money? Each time you pay your monthly bill and reduce the principal, not only does your balance owed go down, but you also build more equity in your home by lowering your debt. When you take on a mortgage, your principal will go up a small amount each month over the term of your loan. The initial payment will be the least and when you make your final mortgage payment, the principal will be the highest it has ever been. As you make these payments, you are adding more value to your home in the form of equity by lowering what you owe, and you will be saving money as a result.
Mortgage Tax Deductions
When you are a homeowner, there are a few benefits you will get when it comes to your taxes. One benefit is that there are a variety of costs that you can deduct from your tax bill. The first is called a mortgage deduction. This means that you can calculate the interest you’ve paid on your mortgage and deduct it when it is tax time. This can be quite a significant amount since the interest on a mortgage is often quite high when you are in the beginning stages of owning a home. Next are closing cost deductions, specifically origination fees. These are fees charged by some lenders to front the cost of processing your mortgage loan; others will just tack the cost onto your interest rate. You can claim these fees on your taxes, and the savings will be exponential since origination fees often account for 1% of your mortgage loan or more. Did you know that you can also deduct property taxes? This means that all tax paid on your primary home can be deducted as well as one vacation property if this applies to you.
Home Equity Lien Deductions
Along with the interest you deduct from your mortgage, you can also deduct interest paid on a home equity loan. Essentially what this means is that you can bring your credit card debt over to your home equity line of credit and lower the amount of interest you pay on your credit while also receiving a deduction on your taxes. A great option for lowering your overall costs.
You Save More Long-Term
If you were to say that buying a home costs an immense amount of money upfront, you would be right. As with any investment, you will have to give something up before seeing any return. The hefty upfront costs that come with buying, along with the high interest in the early years of homeownership, will likely have most new homeowners wondering if the investment was worth it. However, as you pay down your loan, your interest portion will decrease and down the line, you will pay much less in interest than you would if you had signed a lease instead. Overall, purchasing a home is a smart financial move for anyone to make. Renting means that you are paying the bills on someone else’s land, so when you are ready, why not put those funds toward investing in a place you can own yourself? Owning property, while it does come with its additional costs and stressors, is a very good investment in the long run. You will save money on your taxes and your property will grow in value over the course of your loan as long as you continue to make your mortgage payments on time. Not to mention, owning a home instills a sense of pride in buyers since the property has their name on it and no one else’s.