The Rachel Cruze Show - The Mortgage Myth: Is It Really “Good Debt”?

Starting point is 00:00:05 One piece of criticism that I always get when it comes to money is when I tell people to pay off their house because a lot of people are like, what? Why would you do that? You know, having a mortgage that's good debt. So we're going to talk about that today. Is mortgage really good debts? Make sure to like, subscribe, and share this episode with a friend. All right, let's define what good debt is because a lot of people throw categories of money into this and especially into the debt world because like it's okay. It's almost like they justify the debt because like it's okay. It's good debt. Student loans are seen as this. You know, it's good debt. You are going and learning and expanding your mind and taking what you've learned and going and applying it to your job, which means

Starting point is 00:00:50 you're going to make more money because of this degree and it's going to pay off in the long run. So that's good debt. A mortgage is the same kind of thing. Yeah, when you have a mortgage, you know, of any kind, right? That could be like a 30-year, just right, whatever it is. But, But a mortgage is good debt because your home is going up in value over time and who can, you know, buy a house with cash, right? A business loan is seen as this. In order to grow your business, you may need to take out a loan because the cash flow is not there. But if the, you know, if you're getting customers and the customers are there, but you don't

Starting point is 00:01:23 have enough money to make the product or service that you need to help all these customers, well, we got to get some money in. So might as well take out a loan, right, to go and build the service, build the product, to help the customers make more money and so on and so forth. A home equity loan, sometimes a HELOC is seen as good debt because usually, you know, if you're using this, you're going in and maybe doing renovations to your home, changing some things, adding a pool, whatever it is, and it's going to up the value of your home. So this is good debt.

Starting point is 00:01:51 So again, all of this is considered good debt out there in the real world because people are like, well, it's going to pay off in the long run. And it's okay to take the risk, to take on the loan, pay the interest, all of that, because it's going to reward us tenfold. That's the thought. But the reality is, you guys, life does not always happen the way we want it to. The business ends up slowing down, and then you freak out, and you end up taking out another small business loan to keep the business going, and then the good debt turns into an absolute nightmare. Maybe you go to school, and you go to a school that you can't afford, and you're like, yeah, student loans, no big deal. And you go

Starting point is 00:02:31 take out $120,000 net, and then you go out into the marketplace, you're like, oh my gosh, I can't really find a job, or you're an entry-level position with someone next to you who may not even gone to college, right? And you're getting paid the same. So did it really work out or not? So again, what can happen is life happens, and when you build your life around debt and have debt, you are adding so much risk to your life. And so what we have to think about is that what debt really is. And so you can look at it, you know, even from a spiritual perspective, when scripture says that the borrower is slave to the lender, anytime debt is mentioned in scripture, it is in a negative fashion. It is a, it's a burden on you. That's what it says from the emotional,

Starting point is 00:03:08 spiritual side. And then when you look at the financial side, a lot of things that we take loans out for, even the good debt things, end up, you know, either going down in value, you end up spending more on it than what it was originally worth because of interest. And it just adds to more of your income coming in and your income going back out and not helping you and your family. So all of this, I would say there is no good debt, okay? I really, I mean, honestly, when you look at it, people that live a debt-free life, I really do believe they live below their means. It may not be as big, you know, of a risk-taker, or they may not have as big of a lifestyle, but they are living with a lot of peace. Now, I say all that to say, a mortgage is the one type of dent that we will not yell at you for.

Starting point is 00:03:53 So, and I say that for many reasons, which we'll talk about here in a second. But again, always remembering that debt equals risk. And another huge risk is not keeping your money in a place that supports your financial goals, which is why I recommend Fair Wins Credit Union. So Fair Wins is 100% on your side when it comes to handling money, the Ramsey Way. Their smart checking is a simple and straightforward plan that keeps you on track. And their smart savings celebrates good habits, so it is easy to stay motivated. And do not get me started on the Be Weird debit card. Here it is. I love it so much. So having banking tools that aligns with your values matters. So go to fairwinds.org slash Ramsey and check it all out. You will not regret it. And one monthly cost that is so important to get right is your health insurance plan, which is why I love Christian health care ministries. CHM has no enrollment deadlines, and you can choose any doctor or hospital you want. And that kind of freedom is so important, especially if you're self-employed between jobs or you just want more margin in your budget. So right now, CHM is offering new members a 50% credit towards your first month of membership.

Starting point is 00:05:05 So get started at CHministries.org slash budget and use promo code Ramsey. That's chmistries.org slash budget and promo code Ramsey. All right. So as we're talking about a mortgage, again, the type of debt that you won't get yelled at for here at But it is, you know, there is some parameters around it, okay? So getting a 15-year fixed-rate mortgage is really important. And there's a few reasons why. Most people making an average income, again, can't handle hundreds of thousands of dollars, you know, to purchase all at once in cash. So the loan is going to be necessary. And a home is an appreciating asset. So it goes up over time. So it really is a reliable investment that contributes to your net worth. You know, unlike a car. that goes down at value so quickly, your real estate slowly will go up over time. And again, the 15-year fixed-rate mortgage, I love because you're not throwing your money away for so long in interest. Like when you look at the 30-year loan, if you do that, how much you're

Starting point is 00:06:09 paying an interest is insane over time. So when we can shorten that and putting yourself in a plan that automatically is going to get you out of debt faster, we are all about. So yes, a mortgage loan, again, can be a great decision. It really can be with a few caveats. Now, I want you to make sure that you can buy when you're ready, meaning I want you completely debt-free with a fully funded emergency fund of 36 months of expenses. And it's so hard because I talk to people all the time, especially on the Ramsey Show, and they're like, well, I want to go buy a house. But they still have student loan payments, car payments. I mean, they're basically living paycheck to paycheck. And they're like, well, a mortgage is cheaper than rent. And I'm like, yeah, but also when you own a home,

Starting point is 00:06:47 you own everything. So it gives a roof starts leaking. If your refrigerator goes out, if the heating and air breaks, like, you are on the line for those expenses, and home ownership is expensive. So when you're doing it broke, it's going to cause more stress. That's why I want you out of debt with an emergency fund, which is so, so key. Number two is to make sure that you're not in over your head. So you want your mortgage payment to be no more than 25% of your take-home pay. So you want it to be a fourth. If you make $8,000 a month, that is a $2,000 mortgage, right? So just looking at it because here's the deal. That is more conservative numbers, but you also want to be doing other things with your paycheck. You want to be

Starting point is 00:07:28 investing 15% of your income into retirement. You want to be saving for kids college. You want to be able to give. You want to be able to spend on vacation this summer. Like you want to be able to do things with your income. And if it's all tied up or even if half of it's tied up in just a mortgage payment, it doesn't leave you a lot of margin to do everything else. All right, number. three, when it comes to your down payment, if you are a first-time home buyer, you can put down 5%. That's great. Anyone else, I mean, I would really push you to 20%, which is a lot because houses are so expensive, and I know that may change the game. But when you do 20%, not only are you, do you have a big chunk of your mortgage already paid off at that point, which is wonderful,

Starting point is 00:08:07 but you also can avoid PMI insurance, which is going to save you money too. So again, first-time homebuyers, the lowest I would go is 5%. And number four, I want you to pay it off early. Yes. Paying off your house early, which for some people, it feels like a mountain to to climb. But what we're finding is people doing the Ramsey plan are paying it off in seven to nine years. And there is something to be said about not having a mortgage payment and owning a home. Like that is, that's insane. I was going to say, that's the American dream. I'm sure you can label that wherever. But like, that is a crazy place to be. And it's wild because we are finding more and more people are doing this. And what's great about it is, you know, when you save that mortgage payment,

Starting point is 00:08:46 not only could you use that for investing or being generous or spending, but that is putting money back in your pocket, which is a really wonderful thing because you're working so hard. And when you have your income to use however you need to use it, that's a great thing. Now, if you want to run your own numbers, then make sure to check out Ramsey's Mortgage Payoff Calculator. You can plug in your own numbers and calculate your potential timeline of how fast you can pay off your mortgage and the margin that that will leave you. I'll put a link down below. And the truth is that this isn't really only a financial myth that needs debunking.

Starting point is 00:09:19 So check out my episode five popular money myths that keep you broke. I'll put a link down below. All right, you guys, remember to take control of your money and create a life you love.

The Rachel Cruze Show - The Mortgage Myth: Is It Really “Good Debt”?

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