You’ve heard it before – the benefits of homeownership are some of the best ways to build a strong financial future. But what does that really mean?
There is no doubt that becoming a homeowner is one of the biggest financial decisions you will make in your entire life. It’s also undeniable that simply getting to that point requires a certain degree of financial success. You need to come up with a down payment and closing costs before you can even turn the key in the door to your first hour or condo. But among those who take on the big task of home ownership, many see financial benefits that far outweigh their initial investment, especially during tax season. Here are 5 of them.
Build Up a Stronger Financial Future
Owning a home is one of the fundamental means of accumulating wealth as we age. The caveat: you have to buy a house that you can actually afford.
Asset-wealth is a much more secure predictor of future financial stability than income, which can—and often does, in today’s evolving economy—change from year to year. Putting money into home ownership versus a rental is akin to the difference between putting money into an investment account versus a no-interest checking account, with the latter being only as valuable as it is in the moment while the former increases over time.
If you’re currently renting, calculate how much money you’ve put into your landlord’s bank account versus your own asset (house/condo). It’s an exercise that many don’t want to do, but it will make you rethink the benefits of homeownership – even if that means living in a studio condo even for just one year in order to get your foot in the real estate door.
Benefits of Home Ownership: Tax Deductions
You get a number of tax breaks for owning a home, most notably a deduction for the interest and property tax portion of your mortgage. This deduction is particularly useful for offsetting the initial financial blow that comes with purchasing your property.
The first year you buy your home you are also able to write off any mortgage points on your loan, which can lead to pretty considerable savings depending on how many points you claimed. And if you ever decide to refinance your home after building sufficient equity in it, you also have the option of taking out a home equity line of credit, which is itself tax deductible.
Every single month that you pay your mortgage you own just a bit more of your home. This is a big benefit over renting, where you’re paying comparable monthly fees without any comparable stakes.
The equity in your home builds in two ways and often concurrently: (1) equity builds as the value of your home increases, and (2) equity builds as you pay off more of your loan. These two factors mean that after the first couple of years every month you pay money toward your loan you are building up your financial resources for the future. It’s why some people refer to mortgage payments as “forced savings.”
Want to build equity even faster? Take steps to pay off your debt quicker (like financing with a shorter-term loan or paying more than you owe every month) or increase your property value (think home improvements and a focus on routine maintenance).
More Control Over Day-to-Day Housing-Related Costs
Unless you change the terms of your mortgage, you know the base cost that you’re going to be spending to live in your home every month, both now and in the future. This affords more stability than rent, which is variable and can (and often does) change over time. And control over costs goes even further than that.
As a renter, you don’t have a say over whether your landlord supplies you with energy-efficient appliances that can save you hundreds of dollars every year, but you do have to pay the utility bill either way. As a homeowner, you can make better short and long-term financial decisions that are geared specifically toward your own financial goals and abilities. While this isn’t likely going to help you save for your future in the same way building equity does, it should bring you peace of mind to know that you’re saving money everywhere that you can.
Positive Perks & Benefits of Homeownership
Other benefits of homeownership may come in handy for you someday. For example, a mortgage is considered “good debt,” and as such, it is likely to increase your credit score, provided you always make your payments on time. It also proves your creditworthiness for other things you may want to consider, like a business loan or a new line of credit. It can even lower your monthly car insurance payments. While perks like these should certainly not be deciding factors when determining whether or not you should purchase a home, they do add up as additional benefits if you choose to opt into the housing market.
If you would like to sit down and discuss the benefits of homeownership and how you can own in Toronto, fill out the form below. We would be happy to provide you an in-depth analysis on your situation without any pressure. Remember, knowledge and education are key when it comes to the Toronto market.