It’s tempting to keep renting your residence because being a homeowner is perceived as being more expensive. But are you really saving by renting? Or are you actually costing yourself more in the long run?
Recently, Freddie Mac wrote about the power of home equity. They explained:
“In the simplest terms, equity is the difference between how much your home is worth and how much you owe on your mortgage. You build equity by paying down your mortgage over time and through your home’s appreciation. In a nutshell, your money is working for you and contributing toward your financial future.”
An example of this is if a person buys a home for $150,000 with a down payment of 10% or $15,000, resulting in a loan amount of $135,000. The buyer secured a 30-year fixed-rate mortgage with a monthly mortgage payment plan of $684.03 (not including taxes and insurance).
The chart below shows the home equity built over seven years of making mortgage payments and assuming the historic national average of 3% per year home appreciation:
Now the equity that they have built can be used for a down payment on a new home, cash for an important life event or even their retirement! If they had rented for the same price, they would be paying $684.03 a month and they would have no equity to show for it. Equity is a critical part of homeownership and helps build financial stability.
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Source Credit: Keeping Current Matters