Dave Says: Mortgage Ratios

Reader Question: Do you have a guideline ratio for mortgage debt to income?

When it comes to buying a home, I always tell people to get a 15-year, fixed rate mortgage, with monthly payments that are no more than 25 percent of their take home pay. This type of mortgage is the only debt I don’t beat up people for having. Still, I urge folks to pay off these loans in less than 15 years.

The average person following my plan pays off this type of loan in about seven or eight years. That’s a pretty big deal in terms of your financial security. And paying extra on your mortgage doesn’t have to be a strain. You can start by simply rounding up your payments. If the payment is $770, make it $800 instead, and apply the extra to the principal balance. If you want to get more intense, you could make an extra house payment each quarter, or go the route of bi-weekly payments. To do this, simply make half a monthly payment every two weeks. By the end of the year you’ll have made 13 payments instead of 12. This will knock years off the length of your loan.

Remember, your income is your largest wealth building tool. It’s so much easier to save, invest, and give when all your money isn’t flying out the door to make payments!

Dave Ramsey

Dave is the author of The New York Times best-selling book Financial Peace. He is also the host of the nationally syndicated The Dave Ramsey Show, and is a regular guest on television. All of his financial counseling is based on biblical truths. You can hear Dave from 9 a.m. to 11 a.m., weekdays online at www.daveramsey.com. Send your questions toaskdave@daveramsey.com. He resides with his wife Sharon and their three children, Denise, Rachel, and Daniel, in Nashville, Tennessee.

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