To most, a mortgage is simply an obligation. It is an agreement that they will pay a set amount per month over a certain number of years, in order to purchase a home. The fact of the matter is that there are many benefits to mortgages that people may not even be aware of. Although it may seem like a mortgage is actually going to lessen your financial security, and slow your flexibility with liquid cash, the fact of the matter is that a mortgage can actually be quite beneficial to you in a number of different ways. To start, a mortgage surely is not something to be taken lightly. You are in fact making huge commitment when you agree to a mortgage, and you need to make sure that you are speaking with a financial planner about whether or not they believe the mortgage to be the best idea in your situation, because each person’s situation is different.
In most cases, a mortgage is going to provide you with certain unforeseen benefits that may actually allow you to better your financial situation while investing in a home that will shelter you for years to come. Consider some of the following advantages when you are looking into picking up your first mortgage, and determine whether or not these advantages are going to help to push you in that direction. Everyone should speak to a financial planner prior to taking on a mortgage, but it is also important that you have an understanding of the benefits available to you as well.
Mortgages Won’t Reflect the Value of a Home Over Time
One huge benefit that is often overlooked is the fact that mortgages are not going to reflect the value of the home over time. In fact, your mortgage is only going to reflect the value of the home on the day that you take the mortgage out, and are approved to go forward with the purchase of the home. If your mortgage is for a certain amount and your home continues to gain value over the course of numerous years, you are actually getting quite a good deal in creating a good amount of wealth for yourself in the process. Even if you are not interested in investing in real estate full-time, buying your first home should be looked at as a potential investment. Finding a good deal on a home that will increase in price and value over time can help to generate tens if not hundreds of thousands of dollars for you over that time. If you believe that your home will increase in value over time, this can be determined by speaking with experts within the field, it may be a good idea for you to consider taking out a mortgage.
The Ability to Build Equity
One of the main reasons why people decide to take out a mortgage and purchase a home is the building of equity. It is a major financial reason and can provide you with some very serious benefits. The fact of the matter is that you can utilize this equity for a range of different purposes including college, weddings, and even retirement. Many people state that the higher your mortgage, the lower the equity over time. However, there are ways to structure mortgages that help to build equity, especially over long periods of time. If the home is able to continue to rise in value over time, you can create profitable equity over the course of your mortgage.
Interest Is Tax Deductible
One little-known fact is that interest that is generated with the mortgage is completely tax deductible. All of the interest is tax favorable. For interest that is accrued through mortgages and loans on your home, up to $1 million, is completely tax-deductible. For individuals that are in the 35% tax bracket, every dollar that is spent on mortgage interest is able to save you up to $.35 per dollar on your federal income taxes. This is a great way to greatly reduce the amount of money that you spend on taxes, and also make sure that you remain financially stable in the long-term.
Ability to Rent
One often overlooked fact is that individuals with a mortgage may be able to rent out their home and may be able to cover the cost of their mortgage by simply requiring a rental fee that covers the cost of the mortgage. If you are able to get your monthly payments down to a reasonable amount, you may be able to rent out the home to individuals that are willing to pay up to the amount of the mortgage. This allows you to build investments, without having to pay for the mortgage, or live in the home. There is a wide variety of different ways to structure a mortgage, some may be better for individuals that are going to be renting out their home.
Liquidity and Flexibility
One mortgage myth is the fact that a mortgage reduces your liquidity and flexibility. Actually, in many cases, mortgages allow individuals to be more flexible overall. By taking your time, and paying your mortgage off gradually over time, there are several benefits. One fact is that you may be able to restructure your mortgage, or take loans out on the equity of your home, allowing you to make improvements or other investments with the help of a lender. The liquidity and flexibility of your financial situation is going to be a huge determining factor in your ability to appropriately aide investments in the future as well.
Mortgages Are Better Than Renting
If you are going to be paying a monthly amount no matter what, you want to be building toward something if it is possible. This is one of the reasons why mortgages are typically better than renting. The fact of the matter is that mortgages allow you to build toward something over time, while making a payment that would be comparable to the amount that you can expect to pay in rent for a home. Of course, renting does give you flexibility in where you live, but that money is not being invested.