Written by Peoples Home Equity, one of our amazing financial lenders.
Homeownership is the American Dream. With interest rates at record lows, now is the perfect time to buy!
1. Appreciation:
Real Estate over the next five years is forecasted to increase by 20% along the Wasatch Front. As a home appreciates, it accrues faster than a stock because you get the appreciation of the entire home’s value, not just the gain your down payment cash invested.
For example, if you bought $30,000 in stock and it appreciated 3% per year for three years you’ve gained $2,782 on top of your $30,000 invested. When you sell the stock, you would then owe taxes on that money gained. If you buy a $300,000 primary residence with a $30,000 down payment and it appreciates 3 percent per year for three years, you’ve gained $27,818 on top of your $30,000 invested! That is leverage.
2. Tax Benefits
Homeowners can deduct mortgage interest and property taxes when filing tax returns. Using the same example of $300,000 home purchase with 10 percent down, a mortgage calculator shows a total monthly housing cost of about $1,547, with $1,147 in principal and interest (using a rate of 3% percent), $200 in property taxes, homeowners insurance of $67, and mortgage insurance (required when putting less than 20 percent down) of $133. The tax deductions homeowners get for mortgage interest and property taxes save approximately $235 per month in taxes, so subtract this from total monthly housing cost of $1,547.00 to get an after-tax housing cost of $1,312. This significant savings from tax benefits can often make owning the same as, or cheaper than renting, not to mention paying down the principal balance every month.
3. Mortgage Costs Stay the Same as Rents Rise
Rents continue to rise along the Wasatch Front. In 2001 I paid $650 per month for a 2-bedroom apartment. Today, that same unit rents for $1,400 per month. That is 115% increase over 19 years. With a fixed-rate mortgage on a home purchase, the mortgage payment can never change. Rents continue to rise year after year. Since the mortgage payment is the bulk of the owner’s housing payment, this creates a lot of budget stability. As for the other costs, both owners and renters have insurance and that fee can change year over year. While owners have property taxes that renters don’t, and property taxes can rise as the home appreciates, this fee is tax deductible!
For more information on the benefits of homeownership please contact Jerry Nielsen with Peoples Home Equity at 801-808-3788 or email jnielsen@peopleshomeequity.com
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