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telegraph,

One thing is for sure. People can look at the same information and draw different conclusions. Which is why I think discussion is good. Hopefully all will have a more complete understanding of the information before them.

The original threads

http://boards.fool.com/Message.asp?mid=14471364

http://boards.fool.com/Message.asp?mid=14471841

discussed whether or not millionaires as rule paid down their mortgages at an accelerated rate. In other words, do millionaires invest in their mortgages over alternative investments. After reading chapter 8 of “The Millionaire Mind”, and rereading it based on our posts, my contention is that millionaires do NOT concern themselves with paying down their mortgages at an accelerated rate. More than likely they carry their mortgages to full term.

1. You site Tale 8-5 (p. 310): Outstanding Mortgage Balance

40% of millionaires have NO mortgage &
10% have no real mortgage to speak of (less the $100,000)

Where you came away saying that 50% of millionaires have little or no mortgage thus they must pay them off early, I did not stop there. I went back and looked at Table 8-1 (p. 306): Year of Purchase of Current Home. Here we find that

10% of millionaires bought their homes prior to 1968 and another
15% of millionaires bought their homes prior to 1977

Thus 25% of millionaires have lived in their CURRENT home for at least 23 years. That's enough time to pay off the original mortgage without ever having to make extra payments. Simply, these are old mortgages and many of these mortgages were probably carried to term.

Let's assume that the 23-years-plus millionaires (183 millionaires) are among the 50% that have little or no mortgage (<$100,000). What you'll then find is that of the millionaires who have lived in their home for MORE THAN 23 years (550 millionaires), 80% CARRY MORTGAGES. In fact 45% of those remaining millionaires (<23 years) have mortgages of more than $300,000.

2. You site a quote from page 28 that states:

“What is the median outstanding mortgage balance for those in our millionaire group? It is just under $100,000, or about 7 percent of the current market value of our homes.”

I think the median mortgage of $100,000 dollars can partly be explained by the above. Some of these mortgages are simply old. I think it can further be explained by Table 8-2 (p. 307): ORIGINAL PURCHASE PRICE vs. CURRENT VALUE.

We see here that

30% of homes were purchased for under $300,000 and another
17% were purchased for under $500,000

Thus many of the original mortgages on these homes were not very large.

Table 8-2 also explains the why the outstanding mortgage balance is only 7% of the current market value of the home. From the chart we find that
31% of homes are currently value from $500,000 to $999,999 and
61% of homes are valued at over a$1,000,000

and further less than

3% were valued under $400,000.

Table 8-2 supports Stanley's statement on p.306 which states, “ The approximate purchase price was just under $560,000. According to conservative estimates, it would sell today for just under $1.4 million.” In other words, most of these homes enjoyed a huge increase in value (about 7% to 8% CAGR) over time. 50% of the homes starting out less than $500,000 in value and 60% ending up worth over $1,000,000.

The way the numbers work, many of the homes that were bought for under $300,000 had to appreciate to more than $1,000,000. Thus the 7% mortgage to home value was due mostly to appreciation in home value.

My mother bought her home 23 years ago for about $40,000 with my dad's VA (no money down) 25 year loan. They now have about $6,000 left on the mortgage without ever making extra payments. The home is now worth conservatively about $100,000. Thus the mortgage to value percentage stands at just under 6%. Over those 23 years they realized an appreciation in home value of about 4% per year, close to the rate of inflation.

Millionaires enjoy an appreciation rate on their home values closer to 8%. They would reach the 7% mortgage to home value threshold much sooner than my parents did without having to put an extra dime toward the mortgage.

Thus…

When I take in all the charts and information in chapter 8 I come away with the following:

- They find undervalued homes that are sure to appreciate nicely over time
- 50% of millionaires bought their homes for less than $500,000 and
- almost all, 93% of millionaires' homes are now valued above $500,000

- They tend NOT to pay off their mortgages early
- 60% of all surveyed carry mortgages and 80% of those that bought their homes less than 23 years ago carry mortgages

In other words, the low mortgage to home value percentage of 7% is more a function of TIME, BARGAIN SHOPPING and HOME APPRECIATION than millionaires paying off their mortgages early.

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