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Hi, I'm Ella Gurfinkel, your host of the AskElla Show and senior loan officer at Fairway Independent Mortgage. On my podcast, I cut through the noise to bring you honest conversations about real estate, mortgages, and financial planning.
I interview industry experts to tackle everything from homebuying basics to complex topics like reverse mortgages, trusts, and market trends. With decades of experience, I'm passionate about dispelling myths and providing clear, actionable advice.
Whether you're buying your first home, refinancing, or planning for retirement, I'm here to help you make informed decisions. Join me for straightforward talk about real estate and beyond!
why I don't follow Dave Ramsey's mortgage rules. Dave says 15-year mortgages only. I put my client in a 30-year loan instead and saved him $180,000. Now, here is why conventional wisdom isn't always right. Hi there, I'm Ella Gerfinkle, senior loan officer with 30 years of experience and over 2,000 families served over my lifetime. And if you think there is only one right way to handle a mortgage, you're about to learn why cookie cutter advice can cost you serious money.
My client Marcus came to be convinced he needed a 15-year mortgage because Dave Ramsey says so. He was ready to lock himself into a $3,200 monthly payment because that is what the radio told him to do. But I ran the numbers, looked at his complete financial picture, and showed him a different path. Five years later, Marcus had $180,000 more net worth than he would have had following Dave's advice. And I'm going to show you exactly how we did it. Now, don't like or subscribe until you get to the end of this video because I'm about to challenge everything you think you know about smart mortgage strategy. The problem with onesizefits-all rules. Look, I respect Dave Ramsey. He's helped millions of people get out of debt and build wealth. And in the world of fear porn and absolute lack of financial education, he is a shining star. But here is the problem with the radio or TV advice. It has to be simple enough for mass consumption, which means it can't account for individual situations. Dave's mortgage rule is simple. 15-year fixed rate mortgage payment no more than 25% of take-home pay off as fast as possible. Sounds good on the radio, but real life is more complicated than radio sound bites. Marcus made 180,000 a year as a software engineer. He had excellent credit, stable income, and $100,000 in savings. According to Dave's rules, he should take a 15-year mortgage with payments around 3200 per month. But here is what Dave's rules don't consider. Marcus was 28 years old with 35 plus years till retirement. He had minimal retirement savings because he's been focused on saving for a house. and he was in a high tax bracket where mortgage interest deductions actually mattered. Following Dave's advice would have locked Marcus into a high payment during his prime wealth building years, left him with minimal emergency funds and prevented him from maximizing his retirement contributions. That's not smart money management, is it? No. That's quite rigid thinking that ignores individual circumstances. So, enter cash flow optimization. This is the real strategy, actually. Instead of the 15-year loan, I put Marcus in a 30-year mortgage at $2,400 a month. That's $800 less than a 15-year payment. They would say that's stupid because Marcus will pay more interest over 30 years. But here is what Dave's math misses. What Marcus does with that extra 800 per month matters more than what he saves in interest. Marcus took that 800 monthly difference and did three things. First, he maxed out his 401k contribution, 23,000 per year with 50% company match. That's 11,500 in free money. annually that he couldn't access with a higher 15-year payment. Second, he opened a Roth IRA and contributed 6,500 per year tax-free growth for 35 years. Third, he invested the remaining 200 per month in index funds in a taxable account for for flexibility. So instead of paying an extra $800 per month towards his mortgage, Marcus was investing $1,000 per month in diversified investments with much higher expected returns than the 6% mortgage rate. The investment opportunity Dave ignores. Here's where Dave's advice really breaks down. He treats your mortgage like it exists in a vacuum, ignoring opportunity costs and investment returns. Marcus' mortgage rate was like 6%. His expected return on diversified investments over 30 years, historically around 10% annually. So he's borrowing money at six to invest at 10. That's a 4% arbitrage opportunity that Dave tells people to ignore. I mean, okay, let's say the average is 8%. That is still 2% arbitrage. So, hello. But it gets better. Marcus's mortgage interest is tax deductible. In his tax bracket, that 6% mortgage effectively cost him about 4 1/2% after taxes. So, he's really borrowing at 4 1/2% to invest at 8 to 10%. Over 5 years, here's what happened. Marcus' investment accounts grew to 78,000. His 401k with company matching grew to 145,000. His Roth IRA grew to 42,000. His total investment growth $265,000. If he had taken the 15-year mortgage, he would have paid down about $85,000 in additional principal, but would have missed on $180,000 in investment growth and company matching. Hm. Net difference. Marcus is $180,000 ahead by not following Dave Ramsey's advice. Risk management on why flexibility matters. Well, Dave's advice assumes everything goes perfectly for 15 years. No job loss, no medical emergencies, no major life changes. But come on, real life doesn't work that way. The 30-year mortgage gave Marcus financial flexibility that the 15-year wouldn't have. When COVID hit and his company had layoffs, Marcus would have been stressed about making a $3,200 mortgage payment. Would he lose a job? But his 2400 a month's payment was manageable even on reduced income. When his wife got pregnant and they wanted her to stay home for a year, they could still afford it because they weren't locked into a massive mortgage payment. When a great investment opportunity came up, his friend's startup needed investors. Marcus had the cash flow to participate. That investment returned 300% when the company was acquired. None of this would have been possible with Dave's rigid 15-year mortgage approach. High fixed payments reduce your options and increase your risk. Let's face it, even if they're saving money on paper. Now, let's talk about the tax advantages. More real math. Dave often dismisses the mortgage interest deduction as not worth it. But for high-income earners like Marcus, the math tells a whole different story. Marcus deducts about $28,000 in mortgage interest annually in his tax bracket. That saves him roughly 9,000 per year in taxes. Over 30 years, that's 270K in tax savings. But here is what's really smart. Marcus is essentially getting a government subsidy to build wealth through real estate. The tax code encourages home ownership and real estate investment. So why not take advantage of it? Dave's approach of paying off the mortgages quickly eliminates this tax benefit. Marcus' approach maximizes it while building wealth in other areas. Instead, we use our customized approach. No cookie cutter solutions. And this is why I don't give onesizefits all advice. Every client, every situation is different. Age, income, tax bracket, risk tolerance, other investments, family situation, career stability. I mean, that list can go on and on and on, right? So, for some clients, a 15-year mortgage makes perfect sense. For others, a 30-year mortgage with aggressive investing is hella better. For some, an ARM makes sense if they're planning to move. For others, paying cash and leveraging later is optimal. Marcus' strategy worked because he had stable, high income, was young enough for long-term investing, disciplined enough to actually invest the payment difference, and in a tax bracket where deductions mattered. But I've had other clients where Dave's approach was exactly right. people with unstable income, those close to retirement, clients who wouldn't actually invest the payment difference. The key is analyzing each situation individually instead of applying blanket rules that ignore personal circumstances. Now, let me tell you a story about another client, Sarah. She was also a Dave Ramsey fan who wanted a 15-year mortgage. But Sarah was 45, had minimal retirement savings, and was supporting elderly parents. For Sarah, I recommended a 30-year mortgage with aggressive retirement contributions. And why? Because she had limited time to build retirement wealth, and her mortgage would be paid off by retirement age. Anyway, 5 years later, Sarah's retirement accounts have grown by 150,000, and she's on track for a comfortable retirement. If she'd followed Dave's advice and taking the 15-year mortgage, she'd have a paid off house, but no retirement savings, different situation, different strategy, better outcome. Look, Dave Ramsey's advice works great for people who are bad with money, okay? Have no financial discipline or need simple rules to follow. And there is a category of people who fit into that. But if you're financially sophisticated, you want to maximize your wealth building. Cookie cutter advice can cost you hundreds of thousands of dollars. The mortgage is just one piece of the overall financing strategy. It's basically just another piece of the puzzle. You should work with your other goals, not against them. Sometimes that means a 15-year mortgage, sometimes a 30-year, sometimes something else entirely. Cookie cutter advice doesn't work for everyone. I instead create personalized strategies that maximize your wealth building. So, let's see what works for you and your situation. Here's what I want you to do. Stop following generic advice from radio shows and start thinking about your mortgage as part of your complete financial picture. Book a conversation with me. It's always free and I'll analyze your specific situation. We'll look at your income, your other investments, your tax situation, your goals, and create a mortgage strategy that maximizes your wealth building. Because here's the truth. The right mortgage strategy depends entirely on your individual circumstances. What works for Dave's average listener might be completely wrong for you. If this video challenged your thinking about mortgage strategy, smash that like button, subscribe for more personalized financial insights, and comment below with your thoughts on Dave's mortgage advice. I'll personally respond with how different strategies might work for different situations. Let's create a mortgage strategy that actually maximizes your wealth instead of following someone else's rules. I'll see you in the next webinar.