Is Your Mortgage Loan an Investment or a Financial Burden?

Mortgage loan

Homeownership is the American Dream. Real estate is also one of the safest long-term investments out there. In an ideal situation, your property value will go up over time as you pay down the principal on your mortgage loan.

Homeownership is an Excellent Investment

Your home loan may feel like a huge financial burden as you make large mortgage payments each month (not to mention property taxes, homeowners insurance, HOA dues, utilities and other homeownership expenses). It’s important to remember that it is a long-term investment that should pay off significantly over time.

Let’s say you buy a house for $400,000 right now. In 10 years, its value has appreciated to $600,000 and you have paid off roughly $150,000 of the original mortgage loan. This means you are sitting on $350,000 of home equity. This gives you many options and a strong financial foundation.

How to Benefit from Your Home Equity

You could choose to sell the house at that point, and then use some or all of the equity as a down payment toward a larger house. Maybe you’ve started a family and want a bigger place in a nicer neighborhood. This is a very common scenario as homeowners move up from one home to the next as their financial situation improves. Then, you can later scale down when the kids are all moved out and you don’t need such a big house. If you have strong equity by that point, you’ll be sitting on a nice little nest egg. Move down to a smaller retirement home and use the equity for living expenses, college tuition and other worthwhile expenditures.

Another option with your equity is to borrow some of it with a cash-out refinance loan, home equity loan, or home equity line of credit (HELOC). A mortgage lender will use your equity as collateral to let you take out cash. This money can be used to fund home improvements that could further increase your property value. Or, it could go toward paying down other high-interest debts like student loans, car loans, and credit cards.

Long-Term Advantages of Homeownership

It can be intimidating applying for your first mortgage loan. It’s a huge step in life and it will feel like a major financial burden when you start to look at the numbers. You may feel like you are stretching yourself a little thin at the moment, but that’s okay. If life goes according to plan, your income situation should improve over time. The mortgage payments become more comfortably affordable and eventually, you have the excellent equity and real estate investment options as outlined above.

Your mortgage loan is an investment in your financial future. Yes, a mortgage loan is a significant debt. Your home is likely the largest purchase you’ll ever make in your life (until you buy your next, bigger home). We’re talking hundreds of thousands of dollars. However, a real estate purchase is a much safer investment. Properties generally appreciate over time. The same cannot be said of cars that you finance with a loan or material items you buy with a credit card. They always say a new car loses a significant chunk of its value the moment you drive it off the dealership lot. Your house is very different. It should only go up in value the longer you own it, especially if you take good care of the property.

Homeownership also comes with tax advantages that will benefit you as long as you own your property. Mortgage interest is tax-deductible along with some other mortgage fees and homeownership expenses. This is something else to keep in mind when buying a home.

“Thinking of your home as a long-term investment will definitely make it feel like much less of a financial burden,” says Alvaro Moreira, President of Moreira Team | MortgageRight. “It goes back to the old saying that you have to spend money to make money. As the years go on, you will realize just how great of an investment it is to own real estate.”

Of course, you need to be smart about your real estate and mortgage decisions. Don’t borrow more than you can afford and be ready to take action if your home does end up being too much of a financial burden. As long as you are able to afford your monthly mortgage payments and other living expenses, it will likely pay off incredibly as the years progress.