Should You Take Out a 15-Year Mortgage? Here's What Dave Ramsey Thinks
- Dave Ramsey believes the best way to buy a house is with cash.
- For those who need to borrow, he suggests taking out a 15-year mortgage.
- He also urges home buyers to keep their mortgage to 25% of their income or less.
Here's what Dave Ramsey has to say about getting a mortgage.
If you're going to buy a house, Dave Ramsey believes the ideal way to do it is to pay cash. The finance expert has referred to paying cash for a home as the 100% down plan.
However, Ramsey recognizes this may not be financially within reach for many people interested in becoming homeowners. As a result, he's also spoken about the type of mortgage loan that he recommends if a home loan is absolutely necessary.
For Ramsey, there's only one clear answer when it comes to which mortgage to use to buy a property: It's a 15-year mortgage. This is an alternative to the 30-year that other financial experts, including Warren Buffett, recommend.
Here's what Ramsey has to say about borrowing for a home, so you can decide whether to heed his advice and keep your repayment timeline to just 15 years.
Here's what Ramsey thinks about 15-year mortgage loans
Ramsey is well-known for being opposed to borrowing money. He has taken a strong anti-debt stance, arguing that debt is an obstacle to becoming wealthy in almost all situations.
"The shortest path to wealth is no debt," he explained on his show, to a caller who asked about borrowing for a home or paying cash. He indicated borrowing would simply not be an option for him personally, even if getting a loan was needed to buy a house.
However, unlike other kinds of borrowing -- such as credit card debt -- Ramsey isn't categorically opposed to taking out a mortgage. The only catch is, he thinks a 15-year loan is the only kind of loan you should consider.
"Having said that, I don't yell at people for getting a mortgage -- a 15-year fixed-rate mortgage and pay it off as fast as you can," Ramsey went on to tell the caller. However, he continued with another caveat, reiterating that "between us, the shortest path to wealth is debt-free."
Ramsey has also reaffirmed his belief that a 15-year mortgage is the best choice both on Twitter and in multiple blog posts. He tweeted out, "Never buy a house on more than a 15-year mortgage," and explained on his blog that there are three key reasons he recommends a 15-year loan, including the ability to save tens of thousands of dollars in interest, a faster path to building equity, and the ability to become debt-free 15 years sooner.
Why Ramsey's advice may not be right for you
Although Ramsey thinks a 15-year loan is the best option, the reality is that many borrowers would be better off with a loan that has a longer payoff time. The simple reason for that is, you can often earn a better return on your money by investing it in other things rather than paying off your loan earlier.
That's because mortgages have very low interest rates -- usually well below what you could earn by investing -- and the interest costs are subsidized by the government for those who itemize and are eligible for the mortgage interest deduction.
So, although Ramsey thinks a 15-year mortgage is unequivocally the best choice, home buyers should do their research carefully before heeding his advice.
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