#1 Financial Benefit of Homeownership: Family Wealth - May 28, 2020
Ian Walterhouse
Thursday, May 28, 2020
#1 Financial Benefit of Homeownership:
Family Wealth
While growing up, most of us were taught by our parents and grandparents that owning a home is a financially savvy move. They explained how a mortgage is like a “forced saving plan.” When you pay rent, that money is lost forever. When you make a mortgage payment, much of that money accumulates as equity in the home. What is equity?
The equity in your home is the amount of money you can sell it for minus what you still owe on the mortgage. Every month you make a mortgage payment, and every month a portion of what you pay reduces the amount you owe. That reduction of your mortgage every month increases your equity. A recent report by Mortgage Professionals Canada (mortgageproscan.ca) explained that homeowners gained substantial equity over the last twelve months. The report explains:The average Canadian householder has 73% of the total value of their home available as home equity. Given that the average price of a home in the Greater Toronto Area is $1,013,900 in April 2020, that means most people have about $730,000 available as home equity. That is a lot of money to be sitting or sleeping on.
For most families, their home is their largest financial asset. The increase in equity drives the net worth, or family wealth, of the homeowner. Renters are not earning that benefit. Instead, they’re building the networth of their landlord.
Bottom Line
Home price growth will moderate during the pandemic. And once a solution for the virus is discovered, most experts agree that home values will again begin to appreciate at levels similar to what we’ve seen over the last several years. In the long run, our family elders will be proven correct: owning a home is a smart and savvy financial choice. If you’re ready to discuss your options with one of our experts, give us a call today at 416-522-1112 or email us at ian.walterhouse@century21.ca.
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