Owning a home is still considered by many Americans as the ultimate dream. Even without the many financial advantages, most people have an intense desire to own a home they can truly call their own. It’s the one investment that provides a roof over your head and can be the source of strong pride from making improvements and changes to fit your personality. But, most of all, owning a home is like a gigantic piggy bank, with each mortgage payment acting like a deposit into a savings account. Unlike rent, you actually get money back some day. When real estate appreciates the home essentially pays you interest, sometimes huge amounts. It’s important to understand how greatly a homeowner can profit from even a small amount of appreciation. For example, a 3 percent annual increase in home prices does not sound like much, but consider this: If you purchased a $100,000 house with 10 percent down, your actual investment was only $10,000. So the $3,000 gain is actually a 30 percent annual return on your money invested, a remarkable rate of return by any investment standards. And, if the annual appreciation rate is higher or your down payment lower, then the rate of return is greater still!
Since the appreciation of real estate normally occurs in inflationary times, this makes owning a home a strong hedge against runaway inflation. In fact, during the 1970’s when inflation ran as high as 13.5 percent in a single year, existing home prices rose 142 percent during the decade, compared to an 87 percent jump in the consumer price index. Meanwhile, you receive a significant deduction on your income taxes. The interest you pay in the early years of a long-term mortgage is a large percentage of your total payment, with very little going towards principal. Provided certain conditions are met, one hundred percent of the interest can be deducted from your annual income when determining your federal tax liability.