Dave Ramsey warns Americans to avoid this huge…

Dave Ramsey warns Americans to avoid this huge mortgage mistake

Monitoring mortgage rates is one of the first steps people take when deciding to buy a home, along with determining the budget and saving up enough for a hefty downpayment.

However, given the uncertainty and constant interest rate fluctuations, it has become difficult for home buyers to know the ‘right time’ to buy a home and what kind of mortgage they should be shipping for.

Personal Finance expert Dave Ramsey reveals a key part of the home buying process that is typically overlooked.

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The mortgage loan used to purchase a home dramatically impacts the monthly payment amount, interest accrued, and the time buyers will pay off the loan principal. Over time, a difference of even one percentage point can translate into savings of tens of thousands of dollars.

While most homebuyers gravitate toward 30-year mortgages, Ramsey explains why other options are more advantageous and can help buyers avoid accumulating more debt in the long term.

A couple celebrates the purchase of a new house. Rising mortgage rates have made it difficult for young buyers to find a home within budget, but choosing the right mortgage can help homeowners save money in the long run.
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Different mortgage rate terms carry different interest rates

The two most common mortgage loans are 30-year mortgages and 15-year mortgages. Since 15-year mortgages carry a term half the length of a 30-year mortgage, the monthly payment amount is typically higher but not double.

15-year mortgages also offer lower interest rates. As of January 16, the average 15-year mortgage rate is 6.27%, while the average 30-year mortgage has reached 7.04%.

Ramsey explains why shorter mortgage terms are often overlooked despite being a sound long-term financial decision.

“Here’s the truth—the 15-year mortgage is the better option for one simple reason: a 30-year mortgage will cost you way more in the long run,” he wrote.

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Since you have more time to pay off your loan with a 30-year mortgage, monthly payments will be lower, but the interest rates will be higher. You’ll pay less each month, but over thirty years, you’ll wind up paying the bank more by accruing greater interest.

A 15-year mortgage, however, allows you to pay off the loan in half the time, which means the monthly payments will be higher. The interest rates are lower, so you’ll pay far less in interest over time.

15-year mortgages create massive savings over time

The median price of a single-family home in the U.S. was $385,000 in December 2024. When rounding up to $400,0000, calculating the difference between a 15-year mortgage and a 30-year mortgage has a shocking outcome.

If buyers have saved $80,0000 — 20% for the down payment — that would bring the loan amount down to $320,000. Ramsey estimates that the mortgage payment on a 15-year mortgage would be about $2,700, while the 30-year mortgage would carry a $2,076 payment.

Over time, the 15-year mortgage costs the buyer $486,000, while the 30-year mortgage costs $747,000. Buyers with a 30-year mortgage spend over $250,000 more for the same house, but their monthly mortgage payments are only a few hundred dollars cheaper.

Ramsey explains why buyers should strongly consider a 15-year mortgage, even though it requires slightly more money upfront.

“Sure, it feels nice on the front end to save over $600 a month by choosing the 30-year mortgage—but your interest rate will be higher, and you’ll spend twice as much time in debt!” he explained.

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