Techniques Homeowners Can Use to Build Wealth Instead of Debt
by Ellise Walsh

A home of your own is much more than just a roof over your head. Buying a home is one of the smartest investments the average person can make. Average home prices have been rising by double digits every year for the past several years, and that trend seems likely to continue. And unlike a stock or a bond, you can actually live in this investment.

The purchase of a home can allow the homeowner to build up wealth and use the equity in their home to reduce their debt load and increase their asset base. Some of the best ways to use a home to build wealth are:

• Muster as large a down payment as you can up front. By putting 20% down instead of only 10% or less, the homeowner can build instant equity in their home. A larger down payment also means a smaller monthly mortgage payment, thus freeing up more cash for other investments.

• Use the equity in your home to pay off high interest rate debt. Using the equity in a home to pay off credit card bills and other high interest loans can be one of the smartest strategies for building wealth and eliminating debt. Especially in today’s low interest rate environment, there is no need to be paying 18% interest on a credit card loan. The equity in your home can allow the homeowner to retire this debt and start to build real wealth.

• Make extra payments on your mortgage. If you have any extra cash available, you may want to consider making an extra mortgage payment each month. By paying ahead on the mortgage, you not only shorten the length of the mortgage loan, but you also avoid paying interest on that amount. Consult your amortization schedule to see how much you are saving. By making an extra mortgage payment each month, the homeowner can turn a 30-year mortgage into a 15-year one with no refinancing and no closing costs.

• Take full advantage of the tax benefits of homeownership. The interest paid by homeowners on their home mortgage loans is tax deductible. Be sure to take full advantage of this tax deductibility to lower the real cost of the money and lower your taxes.

There are not many investments that offer as many benefits as your own home. Not only does homeownership provide the emotional benefits of having your own space, but the appreciation you enjoy makes it a smart investment and a great way to build wealth as well.

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