Home ownership is part of the American dream; it’s the biggest purchase most make in their lifetime, and it can be a great tool for building wealth.

Unfortunately, like any tool, home ownership can hurt you if misused. Here’s the biggest mistake homeowners make and how to avoid it.

Image source: Getty Images.

People move too often

Owning a home can be a financial advantage; Homes have historically increased in value over time, helping to build wealth. Ownership is also emotionally rewarding for many; your home is yours, which means you can paint the walls or rip the carpets as you see fit.

However, it can hurt your finances if you move too often. Real estate company red fin says the average American home sells every 13 years.

Life happens, and moving might be reasonable if you’re moving for gainful employment, but people often move for other reasons. The National Association of Realtors conducted a survey that revealed the top three reasons people sell their homes:

  • Get closer to friends or family
  • Need a bigger house
  • The neighborhood is deteriorating

Moving is not the end of the world; people always do. But most don’t realize how much it can cost you if you do it too often.

It plays the game of the bank

A 30-year mortgage is the most popular form of payment for homes, which banks to like. A mortgage has a payment structure of 360 monthly installments; you own the house after this final payment.

Most don’t realize that the banks take their profit from the loan, known as the interest on your mortgage. Payments in your first few years of mortgage are mostly for interest, with little money for loan principal.

For example, the monthly payment for a 30-year mortgage of $200,000 at an interest rate of 5% would be $1,073.64. Of that first payment, $833.33 is interest, and only $240.31 goes toward that $200,000 principal balance. The scales slowly tip each month and the tables end up turning; your monthly payments will be almost all principal and little interest by the end of your 30-year journey.

Remember how the average homeowner only stays for 13 years? After that time, the monthly payment would still be $613.94 interest versus $459.70 principal. That means you’ve paid the bank more than you paid for your house after more than a decade.

People who move often spend a lot of time filling banks’ pockets with interest payments and only get minimal home equity, hoping the market is warm enough to increase home values ​​to compensate. . Staying put long enough to pay off your principal in a meaningful way is the secret to getting the most out of owning a home.

How to win the game

I’m not trying to tell you that you can never move; again, life happens. The best thing to do is to try to think long term before buying a home. Do you want children? You may want to consider this before buying a bachelor pad. Of course, you can also pay extra for your mortgage, paying down the principal once you’ve covered your monthly payment.

There’s nothing wrong with renting if you need mobility or aren’t sure where you might want to live long term. With a little planning and thought, home ownership can be a dream come true. Just make sure you’re playing the game to your advantage, not the bank.

justin pope has no position in the stocks mentioned. The Motley Fool fills positions and recommends Redfin. The Motley Fool recommends the following options: $13 short calls in August 2022 on Redfin. The Motley Fool has a disclosure policy.