Dave Ramsey Says You Should Avoid a 30-Year Mortgage. Is He Right?

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KEY POINTS

  • A 30-year mortgage could make homeownership more affordable.
  • Financial expert Dave Ramsey warns against this loan type for one big reason.
  • Choose your mortgage loan based on your personal situation and what works best for you.

Is this popular type of loan a bad idea?

If you're gearing up to buy a home, you have several options when it comes to financing that purchase. You could opt for a 30-year loan, which is a popular choice among borrowers, or you could sign a shorter-term mortgage, like a 20- or 15-year loan, instead.

The upside of getting a 30-year mortgage is having smaller monthly payments to work into your budget. But a 30-year loan does have a downside, and it's a product financial expert Dave Ramsey thinks borrowers should actually avoid.

Why Dave Ramsey isn't a fan of a 30-year mortgage

The problem with taking out a 30-year mortgage is getting stuck with not only a higher interest rate on your home loan, but also paying more interest on that loan than you would with a shorter-term loan. In fact, Ramsey isn't a fan of paying mortgage interest. He actually thinks the ideal way to buy a home is to put 100% down and not finance that purchase at all.

But most people can't afford to buy a home outright -- especially these days, with property values being so high on a national level. That's why the typical buyer has to look at some sort of financing option.

Still, if you're going to get a mortgage, Ramsey thinks you should aim for as short-term a loan as possible. He also cautions against taking out a 30-year loan with the thought you'll make extra payments toward your mortgage to be debt free sooner.

The problem with that approach is that life tends to get in the way. Home repairs can pop up. Car issues can happen. There are a host of expenses you might incur that prevent you from making those extra payments, even if you have every intention of putting additional money into your mortgage through the years.

As a result, Ramsey thinks if the typical borrower signs a 30-year loan, they'll get stuck paying off their home in 30 years. He believes borrowers should pretend that only the 15-year mortgage exists -- and pay off their homes in that time frame.

What's the best mortgage choice for you?

Your financial reality may be such that your only option for buying a home is to take out a 30-year mortgage on it. While Ramsey may not love that approach, ultimately, you need to do what works for your situation.

However, if you're in a position where you can swing the higher monthly payments that come with a 15-year mortgage, you may want to go that borrowing route instead. Doing so will mean spending less on interest in the course of paying off your home and becoming debt free sooner. That's something Ramsey is most certainly a fan of.

What’s more, while Ramsey might advocate buying a home in cash, that's not necessarily the best move. Homes are very illiquid, and if you tie up all of your money in your home, you might run into trouble if your financial situation takes a turn for the worse. A better bet may be to get yourself a 15-year mortgage despite having the cash to buy a home outright -- even if that means spending some money on interest.

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