Dave Ramsey Is a Fan of the 15-Year Mortgage. Here's Why

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  • A 15-year mortgage will leave you with higher monthly payments than a longer-term loan.
  • The interest savings you might reap could be substantial if you go with a 15-year loan.

If you have to borrow for a home, you might as well spend less on interest.

Financial expert Dave Ramsey is very clear about one thing -- he's not a fan of consumer debt. In fact, he insists that consumers should ditch their credit cards and forgo cash back and rewards because of the potential to rack up debt and pay a lot of interest on it.

Dave Ramsey is so opposed to debt that he's not even thrilled with the idea of consumers taking out mortgages. But he's also a realist and knows that most people can't just purchase a home outright. Rather, they need to finance a large purchase like that.

As such, Ramsey isn't completely against taking out a mortgage. But he does think consumers should try to limit the extent to which they rack up interest on one. And that's why he thinks it's a good idea to take out a 15-year mortgage.

Less interest, less wasted money

The money you spend on interest on any type of loan is money you won't get back. Sure, mortgage interest can count as a tax write-off, provided you itemize on your tax return. But the savings there won't make up for the amount you spend on that interest itself. And so if you're going to take out a mortgage, Ramsey insists you might as well borrow in a manner that costs you the least.

When you take out a 15-year mortgage, you can save on interest in two ways. First, you'll generally snag a lower interest rate on your loan than you will with a longer-term loan. Secondly, because you'll be paying off your home in a shorter amount of time, you won't accrue as much interest as you would with a 20- or 30-year mortgage.

Of course, there's one drawback to getting a 15-year mortgage, and that's having to make higher monthly payments. But Ramsey insists that you should try to stick to a 15-year mortgage, even if it means taking on less house.

In fact, he says your housing costs, including your mortgage's principal and interest, property taxes, insurance, HOA fees (if applicable), and private mortgage insurance payments (if applicable) should not exceed 25% of your monthly take-home pay. That's a more conservative approach than the general convention of keeping housing costs to 30% of your take-home pay or less.

If you can manage to keep your housing costs to 25% of your pay or less, but only with a 30-year mortgage, then Ramsey insists that all you're really doing is trying to buy a home you can't really afford. Instead, he says you should aim to stick to that 25% threshold with a 15-year loan.

Is a 15-year mortgage right for you?

Many people can't afford the higher monthly mortgage payments that come with a 15-year loan. It's that simple. If you're tired of renting and can't swing a 15-year mortgage, then a longer-term loan may have to do. But if you're able to take out a 15-year loan, you'll benefit from a world of savings on interest payments. You'll also get to own your home outright in a much shorter time frame, and there's something to be said for that, too.

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