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by Christy Bieber | Published on Nov. 28, 2021
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Disappointed you missed last year's record-low mortgage rates? Here's the reality.
In late 2020 and early 2021, mortgage rates repeatedly hit record lows. Average rates on 30-year loans fell to well below 3%, while the rates on 15-year loans hovered just above 2%.
Rates have increased considerably since then. But, if you're disheartened by the thought that you missed your chance to get the most affordable mortgage loan, you shouldn't necessarily let this discourage you from buying a home.
In fact, there are plenty of good reasons why purchasing a property could still be a great investment. Here are two of them.
Although rates are up compared to where they were at the start of the year, they are still low by historical standards. In fact, mortgage rates have traditionally been well above 4% on 30-year fixed-rate loans. That means you're still getting a relative bargain compared with what people have paid to buy a home in the past.
Even when rates were higher, mortgage loans were still one of the cheapest types of loans available, especially when you consider that you can claim a tax deduction for interest on your home loan if you itemize your taxes. Borrowing at such a low rate for an asset that should go up in value over time is likely to leave you better off financially.
Data from the U.S. Census shows one of the key reasons why buying a home is a good financial choice for most people, even if they can't qualify for rock-bottom mortgage rates. According to the Census, the median net worth of homeowners is 80 times the median net worth of renters.
Some of that is explained by the fact that people with more wealth in the first place are in a better position to purchase a home than those who are facing factors that cause them to struggle to become a homeowner (such as a low income). But, when you own a home, the house helps you to grow your net worth in most situations.
Each month when you pay down your mortgage loan, you acquire more equity in your home. Eventually, over time, you come to own a valuable asset that is worth hundreds of thousands of dollars -- or even millions of dollars. That's not the case for renters when they pay rent.
Homes also tend to increase in value over the long term, so you acquire more equity as your property value rises. If you can make tens of thousands of dollars or hundreds of thousands of dollars of profit on the property you're living in, this will naturally leave you better off.
Of course, you still need to ensure you're in a good financial position to buy a house and you have an emergency fund to reduce your risk of foreclosure. And you'll need to make sure you pay a reasonable price for your property. But, if you can do these things, then you shouldn't worry about the fact that mortgage rates are higher than they were earlier this year, since your property purchase is still likely to leave you better off in the end.
Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.
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