A home is one of the biggest purchases you’ll probably ever make. So it’s important to make sure that purchase is affordable to you. And the method you use to finance your home purchase could spell the difference between being able to swing the costs comfortably or not.
In this Reddit post, we have someone who’s wondering if they made a bad choice in the context of buying their home. They made a 20% down payment on their townhouse and signed a 30-year loan to finance it.
But the poster is also someone who tends to listen to financial expert Dave Ramsey. And Ramsey might say that the poster made a mistake. But that’s not necessarily true.
You have to do what’s right for you
Dave Ramsey is a big proponent of avoiding debt as much as possible. He commonly tells consumers they shouldn’t have credit cards at all, for example.
In the context of buying a home, Ramsey’s preference is to have people purchase their properties in cash. But that’s not feasible for a lot of people. So instead, Ramsey suggests that when a mortgage is necessary, that borrowers stick to a 15-year loan.
There are a few benefits of a 15-year mortgage. First, buyers get their homes paid off sooner. Secondly, 15-year mortgages tend to come with lower interest rates than 30-year loans. And because they’re not carried as long, homeowners can save a lot of money on interest with a 15-year mortgage.
But the poster says they opted for a 30-year mortgage for a specific reason. As they write, ” I wanted to have the flexibility of a lower payment in case I ever lost my job as I am just supporting myself on my own.”
This, frankly, sounds like a smart move. A 30-year mortgage offers the benefit of lower monthly payments, which can free up cash and lend to other goals. And if those lower monthly payments give the poster peace of mind, that’s reason enough to go with a longer-term mortgage.
Not a poor choice
The poster here should not get upset over their choice to sign a 30-year mortgage. It sounds like they put a lot of thought into the decision and that it’s the right move financially for them.
Plus, signing a 30-year mortgage doesn’t mean that’s the only payoff option. If the poster wants, they can make extra payments into their home loan to get their mortgage paid off sooner and save money on interest. They’re just not obligated to do so, which gives them more breathing room from month to month.
If you’re in the process of buying a home, you may not want to rush into a 15-year mortgage despite the potential savings involved. A 30-year loan could be a better bet because it gives you the most flexibility.
If you’re not sure what type of mortgage to sign or how much house you can reasonably afford, you may want to sit down with a financial advisor and ask that question. They can review your income, savings, and financial goals to offer guidance on a home purchase so that you can approach the decision with more confidence.
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