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Wealth Building – An Advantage of Home Ownership

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          Wealth Building – An Advantage of Home Ownership

As you grow older, the issue of wealth building comes front and center. Wealth building simply
refers to increasing the net value of your total assets. Wealth building over time is one of the
advantages of home ownership.

Building Equity

Owning a home can help you build wealth in two ways. First, you build equity by paying down
your mortgage. A certain percentage of each mortgage payment goes towards a reduction in
the total amount owed. Typically, payments in the first few years of the mortgage are primarily
applied to interest on the loans. As time passes, however, more and more of each payment is
applied to the outstanding loan amount. Before you know it, the $300,000 loan is down to
$50,000 and you’ve gained $250,000 in wealth.

Appreciation is the second wealth building advantage to home ownership. Each year, the value
of your home will increase or decrease slightly based on market prices. Over time, real estate
has always appreciated in value. In the current market, homes in some parts of the country are
appreciating at rates as high as fifteen to twenty percent! Appreciation is a very popular subject
with homeowners.

Wealth Building Example

Let’s look at a simple demonstration of how advantageous home ownership can be. Assume
you buy a home in 2005 for $400,000 and, for the purpose of simply mathematics, pay no
down. Over the next 10 years, your mortgage payments reduce the outstanding mortgage by
$100,000 and the home increases in value to $600,000. The value of your home as a net
asset has grown to $300,000 [$600,000 minus $300,000]! If you had rented during this period,
you would have missed out on $300,000 in wealth. This simple example should show you the
advantage of home ownership.

Historically, home ownership is one the best ways for families to build wealth. If you don’t
currently own a home, you should start looking for one.




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