Table Total Equity Buildup Appreciation Years

15-Year Term 30-Year Term

Purchase price $171,000 $220,000

Appreciated value @ 5% p.a. 219,393 282,260

Mortgage balance @ 5 years 114,498 187,201

Total equity $104,895 $95,059

8 percent annual appreciation rate before the 30-year mortgage actually gave you a larger equity after five years.

Common advice says buy the most expensive property you can afford and you will build wealth faster through leverage and appreciation. But this advice can err. For many borrowers in many cities, the 15-year term, even on a lower-priced property (holding payments the same) can provide larger and safer returns.

Please note. Mortgage Secrets does not specifically encourage you to use a 15-year fixed-rate term. But before you automatically decide on a 30-year term, ask a loan rep to work through the numbers with you. From a wealth-building view (other things equal), the 30-year, fixed-rate loan on a higher-priced house proves superior only during periods of high rates of appreciation.

(Remember, for this example, we have assumed that you make the same sized monthly payment regardless of the mortgage/property you choose. Naturally, in terms of wealth building, the 2- or 4-unit property, when financed with a 15-year loan, grows your equity faster than a single-family property would.)

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