My Home as a Wealth Builder

There are many benefits to owning a home.

Perhaps most importantly, you can build equity in a real asset. Equity is the portion of the house that would represent cash in your pocket if you sold the house today. Whenever you make a mortgage payment, part of the payment adds to your equity by reducing your loan amount while another part pays interest on your loan. At some point in the future, you might be able to borrow against your home’s equity for a remodeling project or a child’s education, so it’s truly an investment in yourself and your future.

While a house or condo often increases in value, it isn’t guaranteed. Depending on where you live, the national and state economy and other factors, your house may actually lose value. If that happens, what you paid for the house is more than what you could sell it for.

Owning Versus Renting
Owning a home also qualifies you for tax breaks that should decrease the amount of taxes you pay.

In addition, when you rent a house, you run the risk of the landlord deciding to sell it rather than continuing to rent it. If you're able to—and want to—buy it, great. But if you can't buy the house, you'll be forced to move when the house is sold. That can be unsettling for everyone—especially children.

If you’ve been renting, you’ll also appreciate that a mortgage may allow you to lock in a monthly payment for housing costs, depending on your type of mortgage. No longer will you be surprised by rent increases.

Mortgages
There are several types of mortgages. The two main choices are fixed-rate mortgages and adjustable-rate mortgages (ARMs). Which mortgage is best depends on your circumstances.

• Fixed-rate mortgages are great if you expect to live in the home for many years. This type of loan will ensure that your interest rate will remain the same for as long as you have your loan. These loans are typically for 15, 20, and 30 years.
• Adjustable-rate mortgages make sense if you’re confident your income will increase steadily over the coming years, or if you plan to move in a few years. ARMs can start with a lower initial interest rate, and the rate then changes every year (sometimes twice per year). The drawback of these loans is that, if your life changes and you decide to stay in your house longer than you originally planned, you could eventually end up paying a higher interest rate than you might have gotten with a fixed-rate loan in the first place.

When you’re shopping for your mortgage, it’s best to avoid balloon mortgages, which offer lower interest rates for shorter terms, such as five, seven, or 10 years. At the end of the term, you must either pay the loan off or pay a fee to refinance your loan at the current interest rate, which might be very high.

Also be aware of prepayment penalties in your loan agreement. You want the option to pay off your loan sooner than the original term without being penalized for doing so.

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