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.