'This is insanity': Dave Ramsey told this Boston couple they should sell their stocks to pour $250,000 into their mortgage. Is that good advice?

At the same time, he’d like to get a jump start on their mortgage. They owe about $329,000 at a 2.875% rate. He said they’re already saving for retirement, have $30,000 in an emergency fund and another $100,000 in a high-yield money market account.

Here’s what Dave Ramsey told Nick to do — and why it may not make sense for everyone.

Should you pay down your mortgage sooner?

You generally have two options: invest your extra cash and aim for returns that outpace your mortgage interest, or pay off your mortgage early to save thousands in interest and free up more income for other goals.

Ramsey’s seven baby steps to building wealth include paying off your home early at step six. A 2022 Ramsey Solutions study [2] found that the average millionaire pays off their house in just over 10 years.

That advice makes sense if you’ve covered the basics. According to Experian [3], paying off your mortgage early may be smart if you already have an emergency fund, you’re contributing to retirement and you don’t carry high-interest debt.

On the other hand, if you’re light on savings and your mortgage is manageable, it may be better to save or invest instead. And if you’re paying steep interest on credit cards or other loans, Experian notes those should take priority.

Emergency savings also matter. Since home equity isn’t liquid, financial experts suggest saving three to six months of living expenses before throwing extra money at your mortgage.

Nick and his wife are in a unique spot: they already have $130,000 in liquid savings. Adding the $150,000 stock portfolio would give them $280,000 more to set aside.

“How much backup do you need?” Ramsey asked. “This is insanity. If I woke up in your shoes, I would put $250,000 down on that house and have a $30,000 emergency fund.”

How to pay off your mortgage faster

There are plenty of ways to speed up your payoff, whether you have a windfall like Nick’s wife’s $150,000 portfolio or just a little extra in your budget.

• Make a lump-sum payment using a tax refund, bonus or inheritance.
• Increase your regular mortgage payments if you earn more through a raise or side gig.
• Switch to biweekly payments. That adds up to 13 monthly payments a year instead of 12.
• Refinance into a shorter-term loan or lower rate if it makes sense.

Just watch for prepayment penalties. According to Debt.org [4], the fee can range from 0% to 2%, often higher in the first year of the loan than later on.

Finally, take an honest look at whether you can afford your home. Spending more than 30% of your income on housing is considered “house poor,” and a LendingTree study [5] found more than 18 million Americans fit that description.

If your mortgage payments eats up too much of your budget, downsizing might free up the cash you need for savings and investments.

At the end of the day, the best move depends on your specific situation. A conversation with a financial advisor can help you decide whether to pay down your mortgage early or put your money to work elsewhere.

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