Primary homes generally don't earn the investment return of financial instruments such as mutual funds. That means you shouldn't buy solely to generate an investment gain. The graph below illustrates the stark contrast in investment return between housing and stocks over the past decade. In most years, the stock market outpaces housing appreciation. On the other hand, Uncle Sam helps out by letting taxpayers deduct part of the mortgage interest and real estate taxes they pay each year.
Borrowers get the benefit only if they pay enough in one year to exceed the standard deduction.
But that usually happens, especially during the first few years of a long-term mortgage when most of each payment goes toward interest rather than principal. Owners enjoy other benefits, too. They build equity over time as home values rise and their mortgage balances shrink. They also don't have to worry about their housing costs shooting through the roof because mortgage lenders can't boost borrower rates and payments, unless those borrowers have adjustable-rate mortgages. Would-be buyers need to consider the downsides of ownership, too.