Not too many years ago, a half-century or so, housing wasn't anything else but a place where people lived. Those who could afford it purchased a house, those who couldn't or didn't see any reason to buy a house, rented their homes. It really didn't matter because prices were pretty stable and people weren't really thinking “investment” when it came to houses. This all changed with the end of World War II when the G.I.'s came home and wanted to begin their lives. Housing tracts developed and buying was more affordable with better lending practices. Fast forward four or five decades and look what has happened to housing. It has become the investment of choice for the middle class, and has worked very well for a large percentage of the population in this country.

Well, I am here to tell you that appreciation doesn't matter, and you will still see housing as the investment choice for millions because it works. The reason: amortization. Amortization is the paying down of the mortgage loan, and how you do it will dictate your investment success in the short run and in the long run. Then, appreciation is simply the best icing on the cake anyone could ever imagine. So let's jump right in and see what I am talking about.

Before I get down to brass tacks, I would like you to know that there are more ways to accomplish what I am going to show you than just what you will see in this column. Mine is not the only, or even the best, solution to maximizing your mortgage dollars. It is simply the easiest and most understandable solution.

The best vehicle I know, for the majority of the people in this country, is the 15-year fully amortized loan. Following this loan very closely is the 20-year and the 10-year fully adjustable loan. That is it! In case you haven't noticed, I did not mention the most popular loan in the world – the 30-year fixed. I believe it will have its day when the average life expectancy goes over 90 years. Then you have three equal life parts: the first 30 years to enjoy and not take anything too seriously, the second 30 years to put in the effort to build a nest egg, and the last 30 years to enjoy the fruits of your labor. Until people live well into their 90's, a 30-year fixed will have to cut into the first or last 30 year period, and unfortunately generally falls into the last 30 year period. Who needs that aggravation in their "golden years"? Those years, as I have stated above, are for the rewards, not the efforts.

So what is the answer? If you are just starting out, the answer is very easy. Do not follow the advice I was given, which was "buy as much house as you can afford with a 30-year loan". The new advice is: Buy as much house as you can with a 15-year loan, or worst case, a 20-year loan. The reality is that your first house will not be everything you want or even need, but every home after that will be. Why? Because you will have the equity from your first house to use to purchase a bigger house, or better house, and the discipline to continue using a 15 or 20 year loan. Let's look at the examples:

30-year loan

$300,000 house; $270,000 loan = $1600/month

5 year balance: $251,000

Amortization $ 19,000

15-year loan

$222,000 house; $200,000 loan= $1635

5 year balance: $151,500

Amortization $ 48,500

At this point I assume both buyers will move up. Neither house has appreciated, and the 30-year loan buyer will have $49,000 to use ($30,000 down payment on the first house plus the amortization), while the 15-year loan buyer will have $70,500 to use from the down payment and amortization. The gap would be closer in the first five years if there were some appreciation, as the $300,000 would have greater value than the $222,000 house. This would begin to reverse by the sixth or seventh year, as the amortization value would really start widening. Example:

30-year loan ($270,000)

7 year balance $241,000

10 year balance $225,000

15 year balance $191,000 Continued...