Congratulations! You’re considering taking the leap into homeownership – what an exciting time! But, before you sign on the dotted line, let’s make sure you understand the financial side of things. From appreciation to interest rates, equity to mortgage payments, here are a few important things to keep in mind as you navigate this journey.
Appreciation: When you own a home, you get to enjoy the appreciation of its value over time. Your property’s value can increase due to factors such as inflation, improvements, and the overall health of the housing market. And the best part? You don’t have to sell your property to tap into that increased value of your home. However, if you don’t take money out of the increased value, when you sell, you’ll benefit from this appreciation, potentially seeing a higher return on your investment.
Interest Rates: Interest rates play a big role in determining your monthly mortgage payments. If rates are high, your payments will be higher, and if rates are low, your payments will be lower. The Federal Reserve sets these rates, and they can change, so it’s important to keep an eye on them. The best thing about interest rates, you’re never locked in. If the rates drop, you can always refinance out to a lower rate to help you reduce your monthly payment, or you can continue to make the same payments each month, helping you build equity in your home much faster.
Equity: Equity is the difference between your home’s market value and what you owe on your mortgage, it’s the part of the home you own free and clear. As you make payments, your equity grows, and you become even more financially stable. And you can always use the equity in your home as collateral for additional loans, (home equity, home equity lines of credit or second mortgage), if you ever need to for any reason.
Mortgage Payments: Your monthly mortgage payments will include both the principal (the amount you borrowed) and the interest (the fee the lender charges you for borrowing the money). Additionally, if you choose, the payments will include your taxes and insurance. Over time, a larger portion of your payment will go towards paying off the principal, and your interest payments will decrease, causing your equity in your home to grow even faster!
Down Payment: The down payment is the amount of money you pay upfront when buying a home. The larger your down payment, the lower your monthly mortgage payments will be. However, this does not always mean that a bigger down payment is the right answer for your own personal situation. Sometimes it is better to make a smaller down payment to make sure you have enough cash on hand when you first move in to make home improvements. Make sure you have enough savings to make this investment and remember, make sure to put the right amount down for you.
Tax Benefits: As a homeowner, you’re eligible for some great tax benefits, like deducting mortgage interest as well as SALT payments (State and Local Taxes) from your Federal taxes. This can lower your overall tax bill and give you even more savings. Be sure to consult with your tax and financial advisors to ensure you are taking advantage of all the benefits you’re entitled to.
In short, owning a home is a big financial decision that requires thoughtful consideration of various factors. Don’t be afraid to reach out to a mortgage and financial professional for advice and remember – you’ve got this!