Homeownership Has Its Investment and Interest Rate Advantages

As the indices of Wall Street teeter back and forth, investing in the stock market can be a risky venture for the middle class. After retirement plans and a 401 K Plan, a home is one of the best investments any American can make. While the interest rate of borrowing money maybe a homeowner deterrent, advantages can be found in interest rates.

From neighborhood to neighborhood, the appreciation of property varies. Generally, homes appreciate at a rate of four or five percent, annually. From year to year the appreciation value of a home may be or less.

As five percent may not seem like a valuable investment, when a home owner compares the stability of residential property to the volatility of the stock market, the advantages to homeownership outperforms stocks and bonds.

For instance, if a consumer purchased a home for $200,000, with a $40,000 down-payment, (twenty percent), the home would appreciate at a value of $10,000 over the first year (five percent annually). With an initial investment or down-payment of $40,000, the annual "return on investment" would be twenty-five percent.

The figure does not represent (property taxes and other mortgage expenditures, i.e. insurance). Alternatively, since the interest rate of the property taxes and mortgage are both tax deductible, its like the government is supplementing the purchase of the home. Moreover, the rate of return when purchasing a house is substantially higher than most other investments.

One of the other major benefits of home ownership, is the all-important tax deduction to which the title holder is entitled. At the end of the year, the interest and property taxes that are paid can be deducted from a homeowner’s gross income to reduce their taxable income.

Hypothetically, if an initial loan balance is $150,000 with an interest rate of eight percent, the borrower would pay $9,969. Twenty-seven percent of which would need to paid during the course of the first year, hence payable on January 1. As a result, the taxable income would be reduced by close to $9,000, a lower figure on account of the IRS’ interest rate deduction.