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Buying a home gives you certainty, like the security of knowing you don’t have to answer to a landlord or being told to leave your home when it suits them. For most Australians, owning your home is the best way to let you live as you want.
It’s hard to miss the stories that house prices have been rising, and fast over the past decade. The median Melbourne house value rose from $484,0002 to $826,5003 in 2018 - more than 70% growth. There are also tax benefits for owning your own home over the long term because you don’t pay capital gains tax on your primary place of residence.
However, while house prices have consistently risen long-term, it’s important to understand that they can have periods of weak growth or even drop in value. Home owners need to be prepared to cope during these periods and understand that home ownership is a long-term investment strategy.
When you own your own home, you are in charge of all the decisions about how your house looks and which room is used for what. You can choose to make modifications in rooms or even renovate as your family situation changes.
As you pay off your mortgage and as your property’s value increases over time, the difference between what you owe on your house and what it’s actually worth also grows. This is called equity, which is the amount you would have left over if you sold your home and paid off your home loan. But, before you do that, you can use this equity to add value to your home by renovating and even invest for the future through shares or a managed fund. The more equity you have, the more financially secure you are.
If history is anything to go by, then the cost of renting will steadily increase over time due to inflation and growing property prices. Depending on where you live, your mortgage repayments may initially be higher than the cost of renting, but over the life of the loan, the interest charged reduces as the principal is paid off. Many people pay off their mortgage in under 30 years and are free of re-payments. Renters will always have to make monthly rental payments.
A mortgage is like forced savings. You are committed to paying your mortgage every month, putting money towards an asset that could potentially increase in value over time. But with renting, it can be tempting to spend your spare cash rather than saving or investing it.
Landlords come with all sorts of demands and restrictions. As a renter, you live according to their guidelines and your ability to make your home your own is limited to what they will allow. Tenants also have very little say in how long they can occupy a rental property beyond the lease.