There are many benefits that go along with home ownership such as the freedom to renovate, the ability to turn up your stereo a bit higher and the chance to sit out in your own backyard to enjoy a barbecue. There are also a lot of financial benefits associated with owning a home but we are going to take a look at the top 3 that include:
- More financial control
- Higher net worth
- More borrowing power
More financial control
Let's assume that a person takes out a 25-year mortgage at a fixed interest rate. For the next 25 years of his life he is going to be able to budget for the mortgage payment and know exactly what is expected of him every month. A renter, however, never knows exactly how much his rent is going to increase when his lease expires. The thing that a renter can count on is rising rental costs but he'll never know exactly how much they will be. Owning a home puts you in financial control over your housing payments.
Higher net worth
On average, people that own their own homes built up a higher net worth than people that are renters. It's not difficult to see why it works out this way. It really comes down to simple math. If a person is paying $1,000 in rent every month he will be handing over $12,000 per year to his landlord. If he rents for 10 years this amount goes up to $120,000. If, on the other hand, he puts this $1,000 into mortgage payments, at least part of it will end up as home equity. Considering that most young adults are out of the home by the age of 20 and most people will live to be at least 70 years old, that adds up to 50 years of rental or mortgage payments. Since the average mortgage only lasts for 25 years, the person renting is going to have to pay double the amount over the course of his lifetime. That's a lot of money!
More borrowing power
As you continue to build up equity in your home, you'll be establishing more borrowing power. It's nice to know that you'll be able to have this nest egg to count on for critical future events such as your child's education, your child's wedding, the dream vacation you've always wanted and of course your retirement. Even if you never have to use this borrowing power to your advantage, it's a great feeling of security to know that it's there if you need it.