Staying Put May Be Your Biggest Wealth-Building Tool

Families who were fortunate enough to lock in generationally low mortgage rates before the rapid increase over the past few years have one of the best wealth-building tools available - staying in their homes.

Consider a 35-year-old couple making $200,000/year that took out a $600,000 mortgage on a $750,000 home and were lucky enough to lock in at 3% for 30 years before rates started to rise. Their payment comes out to roughly $30,000/year or 15% of their income.  

Let’s now assume that they receive a 3% raise every year. Because their mortgage payment is fixed, it slowly becomes a smaller portion of their income and they can save half that raise in investments, while enjoying the other half. They start out saving 15% of their income ($30,000), and the next year they save $33,000 ($30,000 + ½ of the $6,000 raise). They repeat this for the next 30 years before retiring at 65. Assuming a 7% rate of return (not guaranteed), they have nearly $6.2 million. 

Now assume that the same couple decides that they want to upgrade their home so they sell the first home and purchase a $900,000 home with a $750,000 mortgage at the current rates of roughly 7%. Their payment is now $60,000/year so they don’t save anything at first. They get the same 3% raises and save half of it. At retirement with the same assumptions, they have $2.7 million, about $3.5M less than if they had stayed and invested the difference. 

Finances aside, there are of course legitimate reasons to move. You may have a great career opportunity or you may be a growing family in need of more space. But if you were lucky enough to have been a young home buyer while rates were low and can find contentment in your home, your future self may thank you for staying put! 

Happy Planning, 

Alex 

This blog post is not advice. Please read disclaimers.