This Ramsey Expert Says You Should Get a 15-Year Mortgage: Here’s the Math
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John Schmoll
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Amen Oyiboke
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Buying a home is traditionally the single largest purchase most Americans make in their lives. A mortgage is typically necessary for many would-be homebuyers to turn their dreams into reality.
Personal finance expert Dave Ramsey doesn’t always see a mortgage as necessary, but he argues that if you do need one, then a 15-year fixed mortgage is the only option to consider.
In a recent TikTok, Ramsey expert and employee Jade Warshaw explained why a 15-year mortgage is better than a 30-year fixed mortgage.
Why Dave Ramsey Cares So Much About Mortgages
Ramsey is well-known for being vehemently against incurring debt. He feels similarly about creating wealth. Debt is a drag on wealth creation. Taking out a 30-year loan can impede you from creating wealth sooner, in his opinion.
A 30-year loan also brings a higher interest rate. When asked why they espouse a 15-year mortgage, Warsaw said, “At the base of that, you’re going to get a better interest rate. But, the other base of it is you’re going to pay it off 15 years sooner if you just pay the payment.”
That 15-year difference creates a lot of freedom.
“Not only is there huge freedom in being completely debt-free and living in a paid-for house, but it’s also a great way to build wealth — getting rid of your house payment leaves you with a ton of extra money each month to save for retirement,” said Rachel Cruze in a recent Ramsey article. In short, Ramsey cares about mortgages because he hates debt.
15-Year vs. 30-Year: The Math on the Same House
The 30-year fixed mortgage is a staple of the mortgage industry. In fact, it’s the most common loan term in the U.S., according to SoFi. While it makes payments smaller, it also costs more to take out than a 15-year fixed mortgage. Simple math reveals why they’re more expensive.
Assuming you purchase a $400,000 home with a 20% down payment, you’re borrowing $320,000. A 15-year mortgage with a fixed rate of 6% would result in a monthly payment of approximately $2,7000 with $166,000 in interest paid over the life of the mortgage.
The same purchase with a 30-year mortgage is notably more expensive. Assuming a 6.75% interest rate, your monthly payment will be roughly $2,075, but you will pay about $427,000 in interest over 30 years. That’s a difference of $261,000.
Yes, the payment is more with a 15-year mortgage, but it saves loads of interest. Ramsey argues the math can’t be ignored.
“People usually push back when I give this advice, and I get it, but that frustration doesn’t change how the math adds up,” said Ramsey in a recent Facebook post.
What To Do If the 15-Year Mortgage Is Too High
Not everyone may be able to afford a 15-year fixed mortgage. Opting for a 30-year mortgage can be tempting, but Ramsey argues that a paradigm shift is necessary. He hates debt and believes the longer term will keep you from creating substantial wealth.
His solution is not to purchase the house, but to take other actions first to keep the mortgage payment within his suggested 25% cap of your monthly take-home pay.
“Work with a real estate agent who’s skilled at finding houses for sale that actually do fit your 25% limit. Fair warning: You may have to adjust your expectations on what you want in a house,” said Ramsey on his website.
If that doesn’t help, he recommends other actions. “Save a bigger down payment so the monthly mortgage payment on your ideal house does fit your 25% limit,” added Ramsey on his website.
Buying a home is an exciting time, but view it in light of your overall financial goals. In Ramsey’s opinion, the “right” mortgage is less about stretching yourself too thin than about selecting a term that lets you pay it off quickly and keep your budget flexible.
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