We can afford it on a 30-year mortgage
Faith and her husband have found a home they love, but they can only afford it on a 30-year mortgage. Dave warns them against going this route.
QUESTION: Faith and her husband have been saving money, and they’re ready to buy their first home. They found a place they love, and they can afford it if they get a 30-year mortgage, instead of a 15-year mortgage. Dave warns them against taking on house payments for 30 years. He says 30-year mortgages are traps that drain your income.
ANSWER: Good financial decisions can be defined as things that help you win with money over the long-term. Thirty-year mortgages are a trap. They don’t help you build wealth, and they keep you in debt. Fifteen-year, fixed-rate mortgages get you out of debt a lot faster, and not having any debt frees up your largest wealth-building tool — your income.
I would never take out a home loan where the payments are more than a fourth of your monthly take-home pay on a 15-year, fixed-rate mortgage. My advice is to either wait and save more money, or look for a less expensive home.