Why home ownership is a good investment - By Carrie Colby

If you’re like most first-time home buyers, you’ve probably listened to friends’, family and coworkers’ advice, many of whom are encouraging you to buy a home. However, you may still wonder if buying a home is the right thing to do. Having reservations is normal. The more you know about why you should buy a home, the less scary the entire process will appear to you. Here are some good reasons why you should buy a home.
 

Pride of ownership is the number one reason why people yearn to own their home. It means you can paint the walls any color you desire, turn up the volume on your CD player, attach permanent fixtures and decorate your home according to your own taste. Home ownership gives you and your family a sense of stability and security. It’s making an investment in your future. 

Although real estate moves in cycles, sometimes up, sometimes down, over the years, real estate has consistently appreciated. Market forecasters predict that 2014 will be another year of gains for the real estate market, even though the rapid pace of sales in 2013 cooled off a bit at the end of the year. On Dec. 30, The National Association of Realtors said its pending home sales index, based on contracts signed last month, rose 0.2 percent in November, below the 1 percent rise forecast.

Home ownership is a superb tax shelter and our tax rates favor homeowners. As long as your mortgage balance is smaller than the price of your home, mortgage interest is fully tax deductible. When you rent at the end of the year you have a pile of 12 cancelled rent checks, however, the homeowner has a pile of 12 cancelled mortgage checks that are nearly fully tax deductible on your tax return. Interest is the largest component of your mortgage payment. 

When you do sell as long as you have lived in your home for two of the past five years, you can exclude up to $250,000 for an individual or $500,000 for a married couple of profit from capital gains. You do not have to buy a replacement home or move up. 

Paying your mortgage builds equity in your home. Each month, part of your monthly payment is applied to the principal balance of your loan, which reduces your obligation. The way amortization works, the principal portion of your principal and interest payment increases slightly every month. It is lowest on your first payment and highest on your last payment. On average, each $100,000 of a mortgage will reduce in balance the first year by about $500 in principal, bringing that balance at the end of your first 12 months to $99,500.

Consumers who carry credit card balances cannot deduct the interest paid, which can cost as much as 18 percent to 22 percent. Equity loan interest is often much less and it is deductible. For many home owners, it makes sense to pay off this kind of debt with a home equity loan. Consumers can borrow against a home’s equity for a variety of reasons such as home improvement, college, medical or starting a new business. Some state laws restrict home equity loans.

Carrie Colby is a Realtor® the Broker/Owner of Premier Properties in Raymond she can be reached at columnist@TheWindhamEagle.com. Check out all of her current listings.