Income Tax Savings
One of the best things about buying your own home is the tax benefits you will receive. The interest that you pay on your financed mortgage and the amount of your property taxes can be deducted from your yearly gross income. This reduces your taxable income and puts more money back into your pocket each year.
Let’s look at your tax savings for a minute. Assume the balance of your home loan is $150,000 and you have an 8 percent interest rate. In the first year alone, you would pay nearly $10,000 in interest. Due to the IRS deduction you can receive, your taxable income would be $10,000 less than it would otherwise be if you have made the mortgage payments for an entire year.
You can also deduct the property taxes on your home. This cost may also be deducted from your annual gross income which results in a lower taxable income as well.
Monthly Housing Costs
When renting an apartment, the landlord or management company almost always raises your rent each year or every couple years. However, with a fixed rate mortgage, you will have the same payment each month for the entire term of the loan. This helps you plan your budget because you know how much to set aside each month for the mortgage payment. Adjustable rate loans are a little different, but they are also within a certain range each month so you can budget your money. When you think about how expensive renting is going to be in 10 or 20 years, you will see how important it is to finance a home with a fixed mortgage payment.
You can think of your home as an automatic savings account. After a few years of paying, a larger chunk of your money is applied toward the principal balance of the mortgage rather than the interest. Your home also appreciates in value. As a result, you are essentially putting money into a savings account which accumulates value over the life of the loan. Once you are done paying on it, you have a huge amount of cash available to you should you decide to sell it.