Should you pay off your home early? This is what Dave Ramsey says to do for baby step 6 and today I am going to share why that may not be a good idea.

Dave Ramsey Method of Buying a Home

• Get a 15 year mortgage with 20% down.
• Monthly mortgage is less than 25% of your monthly income.
• It’s not a bad philosophy, BUT some families are in a position where they need to buy a home for various reasons.
• So if you need to get a 30 year mortgage to take advantage of low interest rates, have a plan in place so that you get to a point where you could possibly refinance into a 15 or 20 year mortgage if you want.
• It is important to recognize the amount of interest you could save by going with a 15 year mortgage, but at the same time if you have kids and want your kids to be in a better school district you can’t wait 5, 10 or15 years before you buy a home in a better school district.
• In this case be very careful with spending/investing.
• Budgeting is important so you don’t spend frivolously.

Investing vs Paying Off Home Early

• Now you can pay off your home early, but there is always something called an opportunity cost.
• What is the cost of going with this opportunity over another opportunity.
• And I think when you push to pay off your home early that’s going to take away from saving and investing for the future in all the available accounts to you.
• This is where Dave can improve this baby step, Baby Step 6 which is to pay off your home early.
• Instead of paying off home early, look into other retirement savings accounts you can fully fund, 401ks, IRAs, HSAs and then look at taxable accounts.
• By saving more for retirement in taxable and tax advantage accounts you let compound interest work for you over that 10-15 years you would have otherwise tried to pay your home off.
• In my opinion having a mortgage for 15-30 is not necessarily bad as long as you’re building a 1-2 year emergency fund, you’re working to fully fund retirement savings accounts, saving for college and filling up other investment buckets.
• Of course just remember you’ll end up paying more in interest the longer you have a mortgage, BUT this goes back to the opportunity cost. Maybe you’re not in an apartment and you have the peace and privacy you need as a family or have a family member who needs special assistance and a house with specific kind of access is necessary.
• A 30 year mortgage can work as long as you make the decision to be responsible with the other parts of your financial goals.

What We Did

• Full disclaimer we got the 15 year mortgage and it is my favorite method of buying a home where you can’t pay full cash, BUT paying it off early is one of the last decisions we will make, because of all the other more important ways you can use your money.
• So question of the day: are you planning to pay off your home early why or why not?