Mortgage rates are rising, but home buying could still be a good investment
In late 2020 and early 2021, mortgage rates repeatedly hit record lows. The average interest rates on 30-year loans fell well below 3%, while the interest rates on 15-year loans fluctuated just over 2%.
Since then, prices have risen significantly. But if you are discouraged by the thought that you have missed your chance to get the cheapest mortgage loan, don’t let that stop you from buying a home.
In fact, there are many good reasons why buying a property can still be a good investment. Here are two of them.
1. Mortgage loans are still extremely cheap
Although interest rates have risen compared to the beginning of the year, they are still low by historical standards. In fact, the mortgage rates on 30-year fixed-rate loans have traditionally been well over 4%. That means you are still getting a relative bargain compared to what people paid to buy a home in the past.
Even in times of higher interest rates, mortgage loans were still one of the cheapest types of credit, especially when you consider that the interest on the home loan can be deducted from tax when calculating the taxes. If you borrow at such a low rate on an asset that should increase in value over time, you will likely do better financially.
2. Homeowners usually have more assets
US census data reveals one of the main reasons why buying a home is a good financial decision for most people, even if they may not qualify for the lowest mortgage rates. According to the census, the average net worth of homeowners is 80 times the average net worth of tenants.
Some of this can be explained by the fact that people with more wealth are in a better position to buy a home than those faced with factors that make it difficult for them to own a home (e.g. low income ). However, if you own a home, the home will help you grow your wealth in most situations.
Every month when you pay back your mortgage loan, you acquire more equity in your home. Over time, you will eventually acquire a valuable asset worth hundreds of thousands of dollars – or even millions of dollars. This is not the case with tenants when they pay rent.
The value of your own home also tends to increase over the long term, so that you acquire more equity as the property value increases. Of course, if the property you live in can make tens of thousands of dollars or hundreds of thousands of dollars, you will be better off.
Of course, you still need to make sure that you are in good financial position to buy a home and you need to have an emergency fund in place to reduce your risk of foreclosure. And you need to make sure that you are paying a reasonable price for your property. But if you can do these things then you shouldn’t worry about mortgage rates being higher than they were earlier this year because you will probably still end up doing better with your home purchase.