Among Millennials, home ownership has declined to historic lows, and with good reason: crippling debt, a high cost of living, and skepticism about the American dream all conspire to reduce young people’s commitment to home ownership. Their parents might even begin to wonder if Millennials are onto something, but home ownership remains a savvy investment. Indeed, for most Americans, their home is their largest asset. Home ownership can be a boon to your retirement fund, and offer extra protection in the event of a financial crisis. Here’s why.
Mortgage Interest Deduction
You can deduct the interest payments you make toward your mortgage if you end up carrying mortgage debt into retirement. Even if your plan is to pay off your home well before you retire, deducting your monthly interest payments gives you more cash to sock away for your retirement.
A Ready Source of Capital
No one wants to think about selling their home, but sometimes a downsize can mark a positive new chapter. Moreover, real estate values almost inevitably go up over time, particularly if you maintain your home in good condition. If your retirement leaves you with a sense of wanderlust or you need access to capital to fund your expenses, selling your home could earn you a tidy profit, particularly if you choose your home’s location wisely.
A (Potentially Free) Place to Live
For most people, the cost of rent or a mortgage is one of their greatest expenses, eating into whatever retirement savings they’ve scraped together. Buying your own home can help you scale back on this expense in two ways: first, if you opt to pay off your mortgage before you retire, you’ll have no mortgage payments, and won’t have to worry about the cost of renting. Second, even if you are unable to pay down your mortgage fully, it almost always costs less to buy a home than to rent, especially when you consider that renting often means that, every time you move, you will be paying a massive deposit that you might never see again.
Access to Easy Loans
A home equity line of credit is almost always a safer bet than either a personal loan or credit cards. Since HELOCs rely primarily on the equity in your home, they’re often easier to get, even if you have less-than-perfect credit. And if you’re over the age of 62, home ownership comes with an added bonus: a reverse mortgage offers you tax-free money to help fund your retirement. You don’t have to repay the loan as long as you remain in your home, which makes your home essentially a source of free money.
Using Your Home to Earn Income
Your home can be a source of cash even if you continue living in it. Consider renting out a room to a college student, or finishing the basement to create a ready-made apartment for a couple just starting out. If you’re caring for aging parents, an extra room in your home can save you money, since it allows you easy access to your loved one without having to worry about paying their rent. Some people even rent out their homes on weekends when they travel, allowing tourists to take in the local sights and sounds while living like locals. If you live in a popular urban area of a gorgeous vacation destination, don’t discount this potential money-making venture.