As we gather to celebrate Thanksgiving, it's the perfect time to reflect
on the many reasons we are grateful. This year, amidst concerns about
higher mortgage rates, let's take a moment to appreciate the profound
impact of homeownership and the 30-year fixed mortgage on building wealth. Even with
rates above 3%!
Being Grateful for the Wealth-Building Power of Owning a Home
Imagine the life you want in a few years – a vision encompassing career growth, financial stability, and personal goals. Is homeownership part of that vision? The article "Growing Your Net Worth with Homeownership" by KCM highlights the significant financial benefits of owning a home.
Wealth Building through Home Values: Homes tend to appreciate over time, contributing to the growth of your net worth. With the U.S. housing market's total value surpassing $52 trillion, homeownership emerges as a formidable wealth-building tool.
Household Net Worth Is Rising: Data reveals that people from all tax brackets experience wealth growth, emphasizing the role of home values in this financial ascent.
Owning a Home Aids Financial Success: Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), underscores homeownership as a catalyst for building wealth. Monthly mortgage payments act as a forced savings account, helping homeowners achieve a net worth about 40 times higher than that of renters.
Building Equity: Home equity, the value of your home minus the mortgage amount, is a key contributor to net worth. Across different income levels, homeownership consistently outperforms other investments, reinforcing its role in wealth accumulation.
Bottom Line: Owning a home provides a powerful avenue to grow your net worth. Consider connecting with a local real estate professional to embark on this transformative journey.
Owning a Home Helps You Achieve Financial Success
You can tell homeownership had a lot to do with that growth because there’s a significant net worth gap between homeowners and renters. As Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), says:
“. . . homeownership is a catalyst for building wealth for people from all walks of life. A monthly mortgage payment is often considered a forced savings account that helps homeowners build a net worth about 40 times higher than that of a renter.”
The big reason why? Homeowner’s build equity. Home equity is the value of your home minus the amount you owe on your mortgage. And for most homeowners, that’s the largest contributor to their net worth. Here’s the data from First American to prove it (see graph below):
Being Thankful for the 30-Year Home Loan
We should all be thankful for the 30-year home loan - the most amazing wealth-building tool ever created. Here's what it does, automatically:
- In 20 years, a 30-yr loan is HALF paid off
- In 20 years, a home in Charlotte will DOUBLE in value (if not 3x)
- Your monthly payment will never, ever increase
That means, if you buy a $1mil duplex and put 20% down, rent it out and forget about it until your kids are in college… the loan will be paid down to $500K and the market value will be $2mil.
Wow. You'll have turned a $200,000 down payment into $1,500,000 in equity, in 20 years. These are all approximate numbers, but that “return on investment," expressed as a percentage, is 10% per year (in addition to the rent you've been collecting over the past two decades, which remember, has gone up each year).
Warren Buffett is considered the greatest investor of the century - his lifetime annual return is 9.34%.
Congratulations investing superstar. Hint: this works more than once, so try to lather, rinse, repeat.
Wait, but what about rates? Newsflash - they don't matter. Whether your rate is 15% or 5%, your loan is still half paid off in 20 years. And the property still appreciates. All that changes is the monthly payment (which is fixed anyway until 2053).
You don't need to find the “next big thing”. The 30-year loan is it.
Conclusion: A Thanksgiving Toast to Homeownership
As we give thanks for the blessings in our lives, let's raise a toast to the enduring benefits of homeownership and the remarkable 30-year fixed mortgage. These pillars of financial stability not only build wealth but also provide a foundation for lasting gratitude. Happy Thanksgiving!
