A mortgage is a loan facility that enables you to buy a house. Normally, a mortgage is different from a construction loan as you buy a house that is already complete and ready for occupation. This article will focus on the top 5 benefits of taking a mortgage.
At some point in life, most people always get into a debate about whether it is better to either get a mortgage or do the construction. However, the best approach is dependent on various factors such as the cost and the availability of credit.
Top 5 benefits of taking a mortgage
These benefits are felt if you take a mortgage. The list includes;
1. Value appreciation
This is perhaps one of the best advantages of getting a mortgage. Once you buy the house, you are almost guaranteed its value will continue rising into the future.
Houses and land are some of the best investment assets across the world due to this factor. In the long term, this appreciation contributes to your wealth growth.
After paying the mortgage for a while, you can decide to use the value on top to secure another loan facility. The average appreciation rate in real estate is 10% annually.
2. Tax deduction
In most places, mortgage payments are tax deductible. This is usually a way to encourage home ownership.
What this tax deduction means is that you are making more income as opposed to when you didn’t have a mortgage. It is an indirect way to help you pay less tax but at the same time own a house.
3. Enables home ownership
As you all know, decent housing is a key basic need for human beings. However, it doesn’t come cheap to get a house. This is where taking a mortgage come in to help you get the house.
Taking a mortgage makes it easier for you to own a house and pay for it in the long term with a loan duration going up to 30 years. Hence, without this, it could take some people up to 30 years to save to get a house in cash.
4. Helps to free your capital
Even if you have cash, it is possible to free your capital by taking a mortgage and making small payments monthly.
This enables you to deploy your capital on other income-generating activities. It works better if you can invest your capital in assets that generate more income than the mortgage interest payments.
As an example, if you are paying the mortgage with a 5% interest, you should seek to invest in assets offering more than 5% income. This way, your net income will be positive.
5. Boosts your credit score
The importance of credit scores keeps expanding especially in the debt sector. Hence, any type of activity that boosts your credit score should be much welcome and appreciated.
Taking a mortgage and making monthly payments is one of the best ways to boost your credit scores. Good credit scores indicate you are a good borrower making it easier to access credit in the future.
You also enjoy other benefits that come with good credit scores such as lower interest rates and higher loan amounts.
Below is a recap of the top 5 benefits of taking a mortgage.
- Value appreciation
- Tax deduction
- Enables home ownership
- Helps to free your capital
- Boosts your credit score