Why having a mortgage could actually help you build wealth faster

Everyone knows it buy a house is one of the most important financial decisions most people will ever make. Although it can be fraught with challenges at every turn, the benefits of homeownership often outweigh the risks.

Taking out a mortgage comes with many responsibilities, but owning a property can help someone accumulate wealth in several ways, including receiving tax benefits and benefits. sustained growth in home values.

Despite high property prices and interest rates, owning property is a smart way to help you build wealth faster than you think – GOBankingRates explains how.

Find out more: 5 cities where houses will be completely robbed in 2 years

See Next: How to start investing in real estate – Even if you are not rich

Current trend: Suze Orman’s secret to a wealthy retirement: Did you invest that money?

Leveraging Your Mortgage

Using your borrowed debt – your mortgage – is a lever to increase your net worth and increase your return on investment. By putting down a small portion of the cost of the home and borrowing the rest, the homeowner uses other people’s money to build wealth as the entire asset appreciates, not just the portion that is owned. he paid with his own money.

Try this: 3 Best States to Buy Property in the Next 5 Years, According to Experts

Home appreciation

You can’t do it quickly, but one of the greatest benefits of owning a home is the ability to build wealth over time by increasing your home equity. A home can appreciate or depreciate over time, depending on many factors – location, supply and demand, and economic conditions – but in general, real estate tends to increase in value.

Tax benefits

Mortgage interest and property taxes can be deducted from your taxable income, reducing your overall tax burden and offsetting the expenses of owning a home. According to the IRS, the costs a homeowner can deduct are state and local. real estate taxes (subject to the $10,000 limit) and residential mortgage interest, within the authorized limits.

Hedge against inflation

A fixed-rate mortgage keeps your monthly payments constant over time, even if inflation increases other living costs. So, if you manage to get a mortgage during a period of low interest rates, it will remain constant and become more affordable in real terms. As inflation rises, property and rent prices also rise, increasing the value of your investment. If you have a mortgage, you’re protected against rising costs, which can increase your wealth-building potential over time.

Mortgage payments and rent

Owning can be cheaper than renting in many markets. According to a recent Zillow home loan studyFalling mortgage rates and rising inventory have led 22 of the 50 largest U.S. metros to have an average monthly mortgage payment that is lower than rent. Using the difference between what you pay in mortgage and what you pay in rent can be invested in wealth creation initiatives.

Potential rental income

Investing in rental properties is a great way to build wealth, as is becoming a landlord and earning passive income from someone renting an extra room or basement apartment in your home. When inflation rises, your wealth creation potential increases further, allowing you to offset your mortgage payments with a portion of what you earn from your home.

Generational wealth

One of the most important benefits of homeownership is the ability to accumulate wealth that can be passed down through generations. According to Forbes, passing property down to your descendants can help break the cycle of poverty by providing opportunities for “education, entrepreneurship and financial security.”

Investment Opportunities

Simply saving money doesn’t increase your wealth, but all of these strategies can help free up money for investing. Any extra money you can save allows you to set aside money for emergencies or unexpected expenses. And the saved money can be used to invest in stocks, funds retirement accounts or search for others real estate opportunities, all of which have the potential to increase wealth faster than prepaying a mortgage.

More from GOBankingRates

This article was originally published on GOBankingRates.com: Why having a mortgage could actually help you build wealth faster