Buy your house

Wow, these are the same wise words that I learnt some 25 years ago and after reading it, it is ringing soundly in my mind. So TRUE!!!
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By
Albert Yang

You will have to live somewhere no matter how rich or poor you are. So your domicile will forever be an expense that you have to incur. That being the case, you should try to convert it to the lowest possible expense it can be; and you do that by paying it off.

The average home owner is over 33x richer at point of retirement than the average renter. That’s because mortgage payments go towards reduction in a loan until a house is paid off. When you rent, the same thing happens as well, except you are NOT the beneficiary of the house being paid off.

Paying off your house is one of the best things you can do to obtain peace of mind. Understand the basics of how math (and specifically compound interest) applies to your house. For example, if you have a mortgage that is 7% for 30 years, every dollar you pay against it is a guarantee of 7% FOR 30 YEARS!

A lot of people think they can beat this by investing in the stock market or the like. Maybe you can, but can you guarantee that for 30 years?? If your child is one year old, and you are trying to save for his/her college, my advice is to not even save a dollar at all; and instead, take every dollar and put it towards the house.

You will probably find that you cut years and years off your mortgage, and when you have paid off your house, then the old mortgage plus the extra savings can all be thrown against Junior’s college. You will find that generally the math for that works much better, you will probably be able to pay off the house in 11 years, and still have an extra 7 years of unfettered savings for college. Also, understand why most people who retire still don’t own their own homes. First, it is not a priority for them (they say it is, but never bother to do the math for it).

Second, the average family moves every 7~8 years into (generally) a bigger home. What happens is, the family buys a home, takes out a 30 year mortgage, and then pays 20% of it off in 7 years. Then they move to a bigger house, and then START OVER, with another 30 year mortgage. After 7 more years, they have paid off another 20% but move again, and (yep, you guessed it) START OVER again with another 30 year mortgage. After 21 years, they have owned 20 percent of 3 houses, but only own really 20% of their current house, not 60% of a house.

It is this perpetual movement forward that kills the retirement, and renders most families without a house that is free and clear when they retire.

The way to do it is this: If I live in house A, and pay off 7 years of a 30 year mortgage, can I afford to move into house B, while taking only a 23 year mortgage? If I cannot, then I should not move into house B. The key to defeating this vicious cycle is to NEVER reset your mortgage payment length, and to throw every available dollar against it.

When you do this, you will neutralize the compound interest that is against you, and you will also save hundreds of thousands of dollars and buy safety and security all at the same time.

A man is not a man; until there is a house that he may call his castle. A woman is not a woman; until she has a place she may call her home. And neither a man nor a woman can say anything about their house, until they are the masters of it, and own it outright and unencumbered.

Never buy more home than you can comfortably afford, and without dipping into the 1/10th you are saving