With inflation at the highest levels in nearly 40 years, the link between owning your home and building wealth is especially important. Owning a home is a major financial milestone and an achievement to take pride in, because the equity you build as a homeowner gives your net worth a big boost.
A recent report from the National Association of Realtors (NAR) detailed several homeownership trends, including a significant gap in net worth between homeowners and renters. According to the report, the net worth of a homeowner is roughly 40 times higher than the net worth of a renter. This net worth gap exists, in large part because homeowners build equity over time. When you own a home, your equity grows as your home appreciates in value, and as you make mortgage payments each month, reducing your principal. As a renter, you do not have that same opportunity to invest in your financial future as you do when you pay off a mortgage.
Home appreciation has a major impact on the wealth you build, since a home is one of the few assets that has the potential to appreciate in value as you pay it down. In other words, when you own a home, you have the advantage of your mortgage payment acting as a contribution to a forced savings account, which grows in value as your home does. When you sell, any equity you have built comes back to you. As a renter, you never will see a return on the money you pay out in rent every month.
Additionally, owning a mortgage is a great hedge against inflation. Have you had to renew a lease, only to find out that your landlord is raising your rent again? This does not happen with a fixed-rate mortgage; your payments stay unchanged for the life of your loan, while your home equity (and net worth) rises.
While owning a home has financial advantages, renting might be the right decision for your situation. With recurring property taxes, insurance payments and ongoing maintenance costs, owning a home can become very expensive. The bottom line is that homeownership is the right decision for many people, and an important part of building net worth. If you have questions, or are ready to start on your journey to homeownership, connect with a trusted, licensed mortgage professional today.
– Matt Quagliana, NMLS #1937747, is a licensed mortgage professional with Homeowners Financial Group in Canton. He can be reached at firstname.lastname@example.org or 770-885-6060.