Homeownership Has Its Investment and Interest Rate
As the indices of Wall Street teeter back and forth,
investing in the stock market can be a risky venture
for the middle class. After retirement plans and a 401
K Plan, a home is one of the best investments any American
can make. While the interest rate of borrowing money
maybe a homeowner deterrent, advantages can be found
in interest rates.
From neighborhood to neighborhood, the appreciation
of property varies. Generally, homes appreciate at a
rate of four or five percent, annually. From year to
year the appreciation value of a home may be or less.
As five percent may not seem like a valuable investment,
when a home owner compares the stability of residential
property to the volatility of the stock market, the
advantages to homeownership outperforms stocks and bonds.
For instance, if a consumer purchased a home for $200,000,
with a $40,000 down-payment, (twenty percent), the home
would appreciate at a value of $10,000 over the first
year (five percent annually). With an initial investment
or down-payment of $40,000, the annual "return
on investment" would be twenty-five percent.
The figure does not represent (property taxes and other
mortgage expenditures, i.e. insurance). Alternatively,
since the interest rate of the property taxes and mortgage
are both tax deductible, its like the government is
supplementing the purchase of the home. Moreover, the
rate of return when purchasing a house is substantially
higher than most other investments.
One of the other major benefits of home ownership,
is the all-important tax deduction to which the title
holder is entitled. At the end of the year, the interest
and property taxes that are paid can be deducted from
a homeowner’s gross income to reduce their taxable
Hypothetically, if an initial loan balance is $150,000
with an interest rate of eight percent, the borrower
would pay $9,969. Twenty-seven percent of which would
need to paid during the course of the first year, hence
payable on January 1. As a result, the taxable income
would be reduced by close to $9,000, a lower figure
on account of the IRS’ interest rate deduction.