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Lifetime Security. Another financial benefit of homeownership is security . Let’s say you’re 60 years old. You bought your home when you were 30 and you’ve paid off your mortgage. Suddenly, you have a health problem
and you cant’t work. Your income drops. You’ll recover, but it’ll take some time. Good thing you have no mortgage payments! If you had rented a home, your landlord would expect that rent check no matter what’s wrong with you. If you don’t pay, you can be evicted. Owning your home provides security because you have a place to live for your lifetime. The fact is, however, these days the typical buyer of a single-family home only stays in the home about 13 years before selling. Mortgages are rarely paid off through amortization anymore. Financial Stability. Another thing homeownership provides is increased financial stability because mortgage payments are predictable . They do not change from month-to-month. Adjustable rate mortgages can change, but usually in very small increments. Rent, however, can increase at every lease renewal and in unpredictable amounts.
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Let’s Party Old School A mortgage burning party is an American tradition. When a family pays off their mortgage, they throw a big party and have a ritual burning of the mortgage documents. It’s less common today because people rarely stay in their homes for 30 years!
Reflect on Learning: Can you list the benefits of homeownership? Answer: Building wealth/net worth through the down payment, appreciation, tax breaks and amortization; homeownership provides a level of housing and financial security because the homeowner cannot be forced to move out, and because their mortgage loan payment stays consistent over the years. The Downsides of Homeownership Homeownership is not all rainbows and unicorns, however. It has its challenges, which make homeownership a lower priority for many people. PRODUCT PREVIEW The Buy-in. In today’s housing market, 20% of a purchase price is a substantial sum. It’s hard, really hard, to save for a down payment. It can take several years. But if you are committed, motivated, and disciplined you can do it. Plenty of people have! Experts recommend avoiding credit card debt of course, and putting yourself on a strict financial diet for a period of years. Getting a second job and devoting 100% of the earnings to the down payment also helps, or even borrowing from a couple of relatives. In addition to the down payment, there are escrow and title costs when you buy a home. There may also be an optional fee for the home loan which is called a point . One point is equal to 1% of the total borrowed. Many home loans charge 2-3 points. Points may offered by a lender as an opportunity to buy down the cost of the loan. For example, a lender may be offer the option of a no-point loan at 4%, or a 3.5% loan with 1 point. Depending on how long the buyer stays in the home, that lower rate can save a lot of money. The Aloha Advantage The state with the highest property tax rate is New Jersey at 2.29% of the value of the home. The lowest is Hawaii at a mere 0.28% That means the owner of a $300,000 home in Hawaii pays about $850 per year in property taxes; the owner of a $300,000 home in New Jersey pays over $6800 per year! Fin Lit Trivia Fin Lit Trivia Fin Lit
Chapter 9 | Home is Where the Mortgage or Lease Is 158
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