Personal finance guru Dave Ramsey is well known for his strong opinions on getting out of debt and building wealth. One topic he has particularly clear views on is paying off your mortgage early.
Ramsey firmly believes that eliminating your mortgage should be a top priority once you’ve taken care of some other key goals first. He sees paying off your home loan as critical for freeing up cash flow and building your net worth.
Ramsey does say, though, that putting all of your extra money toward your mortgage can have some bad effects. He says that you shouldn’t pay off your home loan if it means not saving for retirement or having an emergency fund.
Let’s take a detailed look at what Dave Ramsey says about paying off your mortgage and the reasoning behind his advice.
Dave Ramsey’s 7 Baby Steps
To understand Ramsey’s guidance on paying off your mortgage, it helps to first review his popular 7 Baby Steps approach to money management:
- Save $1,000 for a starter emergency fund
- Pay off all non-mortgage debt
- Build a fully funded emergency fund of 3-6 months’ expenses
- Invest 15% of your income for retirement
- Start saving for college if you have kids
- Pay off your home early
- Build wealth and give generously
Notice that eliminating your mortgage is Baby Step 6. This positioning reveals how Ramsey prioritizes being mortgage-free. However he believes it’s important to check off the other steps first.
Why Paying Off Your Mortgage Matters
Ramsey says the following are some of the best reasons to pay off your home loan:
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Saves money: If you pay off your mortgage early, you’ll not have to pay as much in interest. You can save more interest if you pay it off faster.
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Boosts monthly cash flow: If you don’t have to pay a mortgage every month, you have a lot of extra money that you can put toward other things, like saving for retirement or college.
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Reduces risk: Owning your home free and clear gives you stability and reduces financial risks associated with job loss or income disruption.
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Builds equity: Extra payments directly build home equity that can be tapped in the future for emergencies or other needs.
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Earns guaranteed returns: Ramsey sees extra mortgage payments as earning a guaranteed “return” equal to your mortgage interest rate.
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Buy lifelike: Ramsey often highlights the psychological and emotional lift that comes from being 100% debt-free.
How to Pay Off Your Mortgage Early
Dave is adamant that paying off your home ahead of schedule should be intentional, not accidental. Here are some of his top tips for doing it:
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Make extra principal-only payments. Ramsey suggests starting by making one extra payment per year.
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Refinance or recast your mortgage at a lower rate and/or shorter term. But watch out for fees.
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Consistently apply windfalls like bonuses, tax refunds or inheritance money to the principal.
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Downsize to a less expensive house and apply the profits to pay off your new mortgage quickly.
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Avoid mortgage accelerators that charge fees for biweekly payments. Do it yourself for free.
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Cut expenses, maximize income increases, and put all extra money toward the mortgage.
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Live on a detailed monthly budget and find gaps to squeeze out more for extra payments.
When Not to Pay Off Your Mortgage Early
One of Dave’s most controversial stances is that you shouldn’t rush to pay off your mortgage early in some cases. Here are some of his exceptions:
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If you don’t have a fully funded emergency fund of 3-6 months of expenses. The emergency fund is more important.
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If you aren’t consistently investing at least 15% of your income for retirement. Retirement comes first.
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If paying off your home would prevent you from saving for your kids’ college. College savings come before your mortgage.
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If you have to raid your retirement accounts to pay off the mortgage. Retirement funds should be off limits.
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If you have to take on risky levels of debt or abandon other important goals to eliminate your mortgage quickly.
The key point Ramsey emphasizes is that paying off your home faster shouldn’t jeopardize your other key financial priorities or force you to make unwise sacrifices.
Final Thoughts on Paying Off Your Mortgage
While Dave Ramsey strongly encourages paying off your mortgage ahead of schedule, he cautions against doing it too soon or making desperate short-term decisions to reach this goal.
His balanced approach recognizes both the huge benefits of becoming mortgage-free and the importance of maintaining liquidity, diversifying assets, and funding other critical savings goals first.
Overall, Ramsey views paying off your home as a vital part of his larger strategy for achieving financial peace, stability and wealth-building. His strategic plan and motivational style have helped millions tackle their mortgage debt and build lasting security.
By following Ramsey’s roadmap and customized tips, you too can develop a realistic payoff plan that eliminates your mortgage in record time while still strengthening the other aspects of your financial foundation.
Should You Pay Off the Mortgage Before or After Investing for Retirement?
Investing for retirement comes first—it’s the priority. We know you’d love to get out from under the weight of a mortgage. Being completely debt-free feels so liberating! You’ll get there, we promise.
But by investing first, you’re giving time and compound interest the opportunity to work. (Just play around with our Investment Calculator to see for yourself.) Not only that, but you’ll also earn a lot more in interest in an investment than you’d be saving if you paid off your house first.
Let’s crunch the numbers, starting with our Mortgage Payoff Calculator.
Pretend you have a $200,000, 15-year fixed-rate mortgage at an interest rate of 6.5%. You’d be making monthly mortgage payments of about $1,740. In 15 years, you’d pay around $113,600 in interest. But if you paid $300 extra per month, you’d save about $26,500 in interest and pay it off about three years sooner. Not bad.
But what if you put that $300 into a retirement fund instead? For this math, we used our Investment Calculator. Here’s what we learned: After 15 years, you’d have over $136,000, assuming an 11% annual rate of return. Now here’s where it gets fun. If you left that money in the investment account for another 10 years, you’d have almost $408,000. Compound interest does its best if you give it plenty of time to work.
Will you work hard to pay off your house early? Absolutely. But remember, as you hit the prime of your career, you’ll be making a lot more. After you invest your 15% every month, you should have money left over to put toward extra mortgage payments.
If all you have for retirement right now is a paid-for home—or you’re pushing hard toward that goal—then you’re ahead of the crowd by far. You already have the drive and ambition to make wise money choices. But you still have some work to do.
Start by partnering with an investing professional to create a workable plan. They’ll show you how a paid-for home fits into your overall financial goals. Plus, they’ll give you valuable perspective on how much money you’ll need to enjoy your golden years.
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Does It Make Sense To Pay Off My Mortgage?
FAQ
Should you pay off your mortgage more than you should?
Spending more than you should, or even thousands, on paying off your mortgage each month might cost you more in the long run. There are many good things about making extra payments on your mortgage to pay it off faster, but Dave Ramsey also knows some bad things. He goes on to say:
Should you pay off a 30-year mortgage early?
The Dave Ramsey mortgage plan encourages homeowners to aggressively pay off their mortgages early, however. One recommendation Ramsey makes is to convert your 30-year mortgage into a fixed-rate, 15-year home loan. A 15-year mortgage will save you a lot of money in interest and help you pay it off much faster.
Should you pay off a mortgage early?
People who are only focused on paying off their mortgage early might miss out on market opportunities with higher returns. Ramsey encourages a holistic approach to financial planning that considers various factors, including opportunity costs, to maximize long-term wealth accumulation.
Should you pay off your mortgage or save for retirement?
Saving for retirement and paying off the mortgage are two of the biggest money goals most people will ever tackle. And deciding which one to tackle first can feel like a financial tug-of-war. On one side, you have the freedom and peace that comes with a paid-for house.
Do mortgage payments suck your retirement savings dry every month?
Mortgage payments can suck your retirement savings dry every month. They can keep you from spending money on the very things that made you want to retire in the first place, like spending more time with grandkids, visiting your bucket list national parks, or starting your own llama farm (because why not?).
How do you pay off a mortgage faster?
Strategies include making extra principal payments and applying windfalls like bonuses or tax refunds. Refinancing to a lower interest rate or shorter loan term may help you pay off the mortgage faster, though it’s important to weigh fees and long-term benefits. Make extra room in your budget and avoid new debt to accelerate your mortgage payoff.
Is it financially smart to pay off your mortgage?
Should you pay off your mortgage with Dave Ramsey?
He goes on to say: “Paying off your mortgage early seems impossible but it is completely doable and people do it all the time, but how can you do it and why would you want to put in the extra effort? Paying off your mortgage early will rev up your wealth building.”
Does Suze Orman recommend paying off your mortgage early?
Personal finance guru Suze Orman says it depends. While the possibility of job loss can trigger financial panic, Orman advises against rushing to drain your savings to pay off your mortgage early. Even if you have enough money saved to wipe out your mortgage, don’t pull the emergency cord until absolutely necessary.
What is the 2% rule for mortgage payoff?