Should You Take This Piece of Dave Ramsey Advice Now That Mortgage Rates Are Higher?

Borrowing has become more expensive. But sticking to this key tip could help keep your costs down.

If you're in the market to purchase a home, you're no doubt aware that mortgage rates have been on the rise since the start of 2022 -- and they don't seem to be creeping back down toward the record lows borrowers enjoyed during the second half of 2020 anytime soon. Adding to the problem is that home prices are sky-high these days. So all told, those looking to buy a home in the near term may be facing an uphill battle.

Meanwhile, financial expert Dave Ramsey is a huge advocate of minimizing consumer debt. And that extends to mortgage debt.

Even before mortgage rates started rising, Ramsey has long sung the praises of the 15-year mortgage. The upside of taking one out is getting to save a lot of money on interest by virtue of both a lower rate to begin with and a shorter payoff period.

But is now really the right time to take out a 15-year mortgage? Or will doing so leave you with unbearably high housing costs you can't keep up with?

A tough call

The upside of a 15-year mortgage is clear -- there are major savings to be reaped on interest. Plus, there's something to be said for shedding your housing debt in half the time of a 30-year loan and not having a monthly mortgage payment hanging over your head.

But right now, between sky-high home prices and more expensive borrowing rates, a lot of buyers simply can't afford a 15-year mortgage and the higher monthly payments that come with it. And so if you're in that boat, then you may want to ignore Ramsey's advice and stick to a longer-term mortgage you can keep up with.

As a general rule, your housing costs, including your mortgage payment, property taxes, and homeowners insurance, should not equal more than 30% of your take-home pay. If signing a 15-year mortgage causes you to exceed that limit, then a 15-year mortgage isn't worth signing. Instead, you're better off sticking to a 30-year loan, even if that means paying more interest on your mortgage over time.

Don't get in over your head

A 15-year mortgage can be tempting right about now, what with interest rates being higher than they've been in years. But while it's natural to want to pay as little mortgage interest as possible, you don't want to put yourself in a position where you take on such high monthly mortgage payments that you can't keep up with them or risk falling behind on other bills.

There's a good chance mortgage rates will drop over time, at which point you may have the option to refinance to a new loan with a lower interest rate attached to it. But for now, if you want to save money on mortgage interest, work on boosting your credit score so you're able to snag the most competitive rates lenders are offering. It could be a better bet than signing up for a 15-year mortgage, struggling with those higher payments, and kicking yourself after the fact.