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A Case For Paying Off Your Mortgage

Last update on: Jun 05 2020

This article makes the case that people spend too much money on their mortgages, especially people who live in high-cost areas. It argues that the best way to save for retirement is to first pay off the mortgage and avoid paying all that interest for 30 years. A 15-year mortgage is much better in the long run than a 30-year mortgage. You’ll have freed up money for higher 401(k) contributions and have all that home equity outright.

What that means is that making mortgage payments can, in theory, be a way to accumulate wealth almost as effectively as contributing to a retirement fund.

In fact, if you buy an urban house today for $315,000 (the average price) and it appreciates at 8 percent a year for the next 15 years, you will be living in a $1 million house by the time you pay off your 15-year mortgage, and you will own it free and clear. Which is to say: You’ll be a millionaire, for a cost of $63,000 down and $1,928 a month in mortgage payments at an interest rate of 4.5 percent. (Plus you’ll have a place to live not just for 15 years but, if you want it, for the rest of your life.) Total outlay: $410,000. If you itemize your tax return it’s even less, thanks to the mortgage-interest tax deduction.

The 8 percent appreciation rate is aggressive, but not entirely unrealistic: It’s lower than the 8.3 percent appreciation rate from 2011 through 2017, and also lower than the 9 percent appreciation rate from 1996 to 2007.



October 2021:
Congress Comes for your Retirement Money
A devastating new law has just been enacted, with serious consequences for anyone holding an IRA, pension, or 401(k). Fortunately, there are still steps you can take to sidestep Congress, starting with this ONE SIMPLE MOVE.

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