Fact Check: Most Millionaires Pay Off Mortgage Early And In Only 10 Years (2024)
Millionaires might have fancier homes than most, many times costing millions, but instead of hanging on to the debt of mortgage, it seems many millions opt to pay off their home loans within 10 years.
In fact, according to Public Policy Institute of California, 58 percent of California’s equity millionaires, as of 2020, had successfully paid off their mortgages. Why do millionaire tend to do this? For financial freedom.
The rapid home loan payoffs among millionaires challenge the myth that owning a home, especially in high-cost regions, necessitates decades of mortgage payments. Paying off a mortgage early not only offers the freedom of living in a debt-free home but also paves the way for building substantial wealth, claims financial guru Dave Ramsey.
Ramsey, of Ramsey Solutions, is a personal finance personality, radio show host, author, and businessman. He hosts the nationally syndicated radio program “The Ramsey Show.” He’s written several books, including The New York Times bestseller “The Total Money Makeover,” and hosted a television show on Fox Business from 2007 to 2010.
Eliminating mortgage payments opens up additional financial resources that can be used towards retirement savings and other investment opportunities.
A paid-for house, Is “also a great way to build wealth—getting rid of your house payment leaves you with a ton of extra money each month to save for retirement. In fact,the average millionaire pays off their house in just 10.2 years,” according to Ramsey’s website.
According to Ramsey Solutions, there are steps for the average homeowner to do like the millionaires–and pay off their mortgages.
Consider mortgage refinancing. Refinancing your mortgage to a shorter term or a lower interest rate can lead to substantial savings. While it may require a slightly higher monthly payment, it’s often well worth it in the long run.
You can also consider downsizing our home. Downsizing is a drastic but effective step to reduce your mortgage debt. Selling a larger home and using the proceeds to buy a smaller, more affordable one can lead to significant mortgage savings.
You can also earn extra income and use it for mortgage payments. Also, any additional income, such as bonuses, raises, or gifts, should be funneled directly into paying off your mortgage. Avoid the temptation of increasing your lifestyle expenses and focus on your financial goals.
While looking to pay of mortgage debt is a goal, for many Black people owning a home is still a hurdle. According to the National Association of Realtors, the Black-White homeownership rate gap is the biggest in a decade. The NAR Report found that while the U.S. homeownership rate increased to 65.5 percent in 2021, the rate among Black Americans lags significantly (44 percent), has only increased 0.4 percent in the last 10 years and is nearly 29 percentage points less than white Americans (72.7 percent), representing the largest Black-White homeownership rate gap in a decade.
And, less than 10 percent of Black renters can afford to buy the typical home.
In fact, the average millionaire pays off their house in just 10.2 years,” according to Ramsey's website. According to Ramsey Solutions, there are steps for the average homeowner to do like the millionaires–and pay off their mortgages.
Not only is there huge freedom in being completely debt-free and living in a paid-for house, but it's also a great way to build wealth—getting rid of your house payment leaves you with a ton of extra money each month to save for retirement. In fact, the average millionaire pays off their house in just 10.2 years.
As Ramsey pointed out, paying more than the minimum amount due each month can cut down on the total amount of interest paid. This is because more of your hard-earned money is going toward the principal balance rather than the interest. Paying early and often also can lower the overall loan term.
“Only 31% averaged $100,000 a year over the course of their career,” the study found, “and one-third never made six figures in any single working year of their career.” Just look at the story of former custodian Ronald Read for a perfect example.
Even with low-rate mortgages, the bulk of monthly payments go toward interest, not principal, sometimes for 10 or more years. Thus, it's not uncommon for Americans to want to pay that debt down as fast as possible. In fact, according to Census Bureau data, nearly 40% of Americans already have.
To comfortably afford a home valued at $1 million, financial experts recommend an annual salary between $269,000 and $366,000. This range, however, is subject to variation depending on your: Annual income. Debt-to-income ratio (DTI)
But with nearly two-thirds of retirement-age Americans having paid off their mortgages, it means that the average age they have gotten rid of that debt is likely in their early 60s. Stats from 538.com, for example, suggest the age is around 63.
“If you're going to buy a house, be responsible with it.And if you're going to stay living it that house for the rest of your life, pay off that mortgage as soon as you possibly can,” she tells CNBC Make It. Orman recommends that you aim to be mortgage-free by the time you retire.
You also may want to avoid paying your loan off early if it carries a prepayment penalty. This is a fee your lender charges if you make all payments your mortgage prematurely. Prepayment penalties are usually equal to a certain percentage you would have paid in interest.
Additionally, statistics show that the top 2% of the United States population has a net worth of about $2.4 million. On the other hand, the top 5% wealthiest Americans have a net worth of just over $1 million. Therefore, about 2% of the population possesses enough wealth to meet the current definition of being rich.
Ninety percent of all millionaires become so through owning real estate. More money has been made in real estate than in all industrial investments combined. The wise young man or wage earner of today invests his money in real estate.
What percentage of America is debt-free? According to that same Experian study, less than 25% of American households are debt-free. This figure may be small for a variety of reasons, particularly because of the high number of home mortgages and auto loans many Americans have.
This allowed homeowners to refinance and switch to shorter-term mortgages without significantly increasing their monthly payments. The number of mortgage-free homes in the U.S. soared by 7.9 million from 2012 to 2022, reaching a total of 33.3 million, per the report.
You might want to pay off your mortgage early if …
You want to save on interest payments: Depending on a home loan's size, interest rate, and term, the interest can cost hundreds of thousands of dollars over the long haul. Paying off your mortgage early frees up that future money for other uses.
Real estate investment has long been a cornerstone of financial success, with approximately 90% of millionaires attributing their wealth in part to real estate holdings. In this article, we delve into the reasons why real estate is a preferred vehicle for creating millionaires and how you can leverage its potential.
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