Over the past few decades, the way we view homeownership has changed. Previous generations would buy a home, take out a 30-year mortgage, and would celebrate the day that they made their last payment. Buying a home wasn’t just a financial investment- it was somewhere they planned to spend the rest of their life, and eventually pass it down to children. Today’s home buyers see buying a home in a different light, choosing to buy starter homes, and upgrading as life would permit – rarely planning to stay in a home for a longer, extended period of time.
Because of this, mortgages themselves have changed to better meet the wants and needs of today’s home buyers. As a result of this newer mentality of homeownership, one of the impacts is a decreasing number of people building equity in their homes the way they might have in years past. Building equity and eventually paying down a loan offers just as many advantages in 2020 as it did in 1950.
- Flexibility – Having equity in your home gives you flexibility when it comes to eventually move. Not all moves are planned out in long term, with new job opportunities or additions to the family requiring a move to a new neighborhood or larger home. Home equity allows for you to have the funds necessary for not only a down payment on a new property but also cover moving and closing costs.
- Safety Net – If the uncertainty 2020 has reminded us of anything, it’s how important a safety net can truly be. Life is full of unexpected expenses – job loss or relocation, accidents or illness, and even natural disasters. Each of these poses a different challenge to you and your finances, and equity in your home can be a solid foundation for you to help navigate these challenges with a line of credit or proceeds from a home sale.
- Asset Recovery – Many homeowners over the past few decades have found themselves with negative equity in their homes. Making additional principal payments on the loan or reaping the effect of higher home values, building equity can create wealth and turn a negative asset into a positive.
Homeowners might not plan to stay in their homes as long as their parents and grandparents, but there are still great reasons to invest in building equity in their homes. Your home is an asset, and when treated properly, can be one of the most effective wealth-building tools.