The number one hurdle to increasing personal wealth is debt! More bluntly, the 30-year mortgage is the major stumbling block to becoming a millionaire.
According to financial book author Chris Hogan, if you do the math on a 30-year mortgage the numbers can be substantial but people don’t look at the amount of money they are throwing away. Hogan’s research shows the average millionaire paid off their house in 11 years and 67% live in homes with paid-off mortgages. This eliminates the biggest debt from their personal balance sheet.
The primary residence takes up roughly one-third of a millionaire’s net worth on average. That means if you have a $300,000 home and the mortgage is paid off it rolls right up into your net worth because there is no offsetting liability loan or in this case, mortgage. Even better if you have $700,000 in investments like IRA’s and 401k’s then pat yourself on the back because you’re a millionaire!
Here’s a little further detail from Hogan: A homeowner with a $225,000 mortgage at 4% interest rate could save more than $87,000 in interest by choosing a 15 year mortgage versus a 30 year mortgage.
Now lets think about that for a second, when you couple that savings with having the ability to then invest your new found dollars…now we’re talking about really building wealth! So instead of paying the bank for an additional 15 years you’d be getting paid for that period of time if you invested the money you’re saving.
Credits:
Hilary Hoffower, Business Insider
Chris Hogan, Everyday Millionaires: How Ordinary People Built Extraordinary Wealth – and How You Can Too.
Dave Ramsey Research Team