Dave Ramsey - 15 year mortgages

amother

OP ↓

Mon, Sep 30 2024, 8:31 pm

I hear that one of his opinions is that if you cant afford the payments on a 15 year and need to take a 30 year then it means you cant afford the house.

Is this another one of his opinions that make no financial sense?

If I take a 30 year mortgage and my monthly payment on a house is $3500 then I am building equity. buying on a 15 year makes my monthly payment too high so I wont be able to buy. If I rent an apartment, I am paying about $3500 in rent. If I wait to afford the 15 year mortgage then the prices go up. If I buy now, I can always refinance if the prices go down.

My proof: I bought a house in 2013 for 300k on a 30 year at 3.5%. I refied in 2020 to a 15 year at 2.5%. If I had waited to buy my house till I could originally afford a 15 year, I would have paid $475K at 5.5% pricing me out of the market completely.

I know he helps lots of people but this seriously makes no sense to me. This seems similar to his advice about not using credit cards that I pay off every month (forfeiting points and purchase protection) or paying off low interest loans instead of investing in higher yield savings losing opportunity cost (ex: paying off my low interest cars 1.9% before putting my extra cash in a locked CD at 5.5%)

Is he only talking to a specific demographic that cant control spending and doesnt understand finances?

lamplighter ↓

Mon, Sep 30 2024, 8:57 pm

I agree with you about the 15 year mortgage but your particular example/numbers to not reflect the market norm. Those were the golden years of real estate.
He is extreme in his ideas but his approach to spending and debt has helped millions. I don't find his steps or his percentages to work for a frum family. I do like listening to him. In many ways off the backs of soaring materialism in the frum world- he's a breath of fresh air.

amother

↑ OP ↓

Mon, Sep 30 2024, 9:00 pm

amother Lime wrote:

I agree with you. Only thing I don’t is I wouldn’t take a low interest loan 1 percent to put the money in a higher interest ex cd 5 percent. My husband and I hate loans.

I agree. I wouldnt take out a loan to put into high yield savings.

However, I have 1.9% on my car. I am not going to not put away my monthly investing/saving so that I can pay it down faster.

I am going to make my low interest payments until I am done my loan and keep my other money available to put in my 401k and savings with higher interest.

amother

↑ OP ↓

Mon, Sep 30 2024, 9:04 pm

lamplighter wrote:

I think it applies even now. rent in frum areas is astronomical. a house in monsey is 4.5k a month to a landlord.

to buy (assuming you have a down payment) in a neighborhood that is not central is not a whole lot more. if going down to a 15 year means you have to rent for another 5 years, thats 5 more years of not building equity.

amother

↑ OP ↓

Mon, Sep 30 2024, 9:39 pm

amother Crocus wrote:

Dave Ramsey has a lot if good points but on the issue of mortgages I disagree with him. This advice simply doesn't work in the frum world.

He actually did a podcast with kosher money. It was very interesting to listen to. Basically at some point he said, well somethings gotta give. The finances here don't work. Lol. He basically agreed that frum finances are ridiculous.

amother

Sapphire ↓

Mon, Sep 30 2024, 10:09 pm

In 2005 we took out a 30 year mortgage at 5.5 percent. In 2010, 5 years in, we refinanced to a 15 year loan at 3.875 percent. So 5 years on the original loan and 15 years on the refi equals 20 years start to finish which means that we are DONE in a few months (April 2025 iyh) while still in our 40's. We did it all on our own but of course we bought when house prices were much lower.

amother

↑ OP ↓

Mon, Sep 30 2024, 10:59 pm

amother Sapphire wrote:

Imagine you had waited till you could afford a 15 year? You probably would have paid an additional $100k rolled into your mortgage if not more.

If someone has a down payment and decent credit, it is fiscally responsible to buy and start building equity. You have to pay to live somewhere anyway. Why not pay it towards yourself?

amother

↑ Sapphire

Mon, Sep 30 2024, 11:14 pm

So in the 5 years between when we bought in 2005 and we refinanced to 15 years in 2010 no our home didn't go up $100k or even probably $20k. It didn't lose value but probably stayed about the same. Because 2005 was kind of a seller's market and high prices and then the housing bubble developed and burst in 2008 along with recession coming. But in those 5 years we built about $12k in equity and we enjoyed having our space so I think we made the right decision.

amother

Clover

Yesterday at 1:33 am

I love Dave Ramsey. We followed his advice in the USA and were on baby steps 4-6. Then we made aliyah and we went back to baby step 2 to buy an apartment. He would have been against what we did to first sign and then save up while the build was taking place. But in the meantime, it’s gone up hundreds of thousands of dollars. We’re on baby step 3 now and we’ll be back at 4-6 in 4 months. As he says, the advice is what you pay for it and there are times we make the debt calculation. As long as you being intentional and have a plan, I don’t see how its not following him. We have a 30 year mortgage because mortgages are structured differently here, we have a plan to pay it off early.

amother

Poppy ↓

Yesterday at 2:24 am

I agree that 15 year mortgages are impractical when its your first home, but we are buying an investment property and we are doing a 15 year with a plan to pay it off in 7.

I actually think that the frum version of Ramsey should be buy when you get married instead of support - a starter home or a home with a basement that you can live in and rent the top out.
Use a 15 year mortgage, and try to pay it down in less, and then when you are hit with tuitions you don't have that expense.
If you are doing well you can upgrade and take another mortgage.

I see so many young couples doing really well - they have benefits because the husband is in kollel + support + decent paying job for the wife + kollel check + parents help them with a down payment on a house.
They are living a very nice lifestyle. Then you see the same couples 15 years down the line, and they are choking. They have a huge mortgage, the husband went to work so they need to pay much more tuition, no more benefits, and no more parental assistance.

If they would knock most of a mortgage out early there would be a lot more breathing space, and if you can afford a mortgage at that point, you can upgrade or save and buy an investment property that generates income to help offset the insane frum lifestyle.

↑ lamplighter ↓

Yesterday at 8:44 am

amother Poppy wrote:

This is a very nice idea in theory but is not practically possible for most people.
I also don't come from a community where kids are supported or get a down payment for a house gifted.
Most people I know are tight and hustling at the start of their marriage. They save up slowly, get promotions etc and buy a house when they can afford it.

amother

↑ Crocus ↓

Yesterday at 8:52 am

amother Poppy wrote:

I think the frum version of this is to buy an investment property right away. Put whatever money you have into a cheap house that you rent out. You're not necessarily making money but you're building equity and when you're ready to buy for real you can use that investment property as your downpayment. I've seen so many people do this and it's really the smartest thing.

amother

↑ Crocus

Yesterday at 8:53 am

lamplighter wrote:

This advice is for couples who do have some money in the beginning. Usually money that they had saved up from before marriage.