Personal finance expert Dave Ramsey has shared his thoughts on whether homeowners should prioritise paying off their mortgage repayments.
On his podcast, a clip which was spotlighted on his YouTube channel, Mr Ramsey took callers from Americans seeking help on what to do about their financial situation.
Tom, 53, from Atlanta, Georgia called into The Ramsey Show to ask what Mr Ramsey thought he should do regarding his mortgage.
He outlined how he had recently sold a company and his family now have enough money to pay repayments off if they wanted to.
However, Tom wanted to ask Mr Ramsey whether he should pay his mortgage off early or if he should instead keep financing.
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The 53-year-old explained he has a home under construction.
He added: “It is a construction loan at 3.5 percent, which is going to change if I close with them under a 15 or 30 year mortgage to approximately 5.5 percent.
“I have the funds to pay it off and I just needed to know if should I pay it off.”
After hearing this query, the personal finance expert asked the called how much this “pile of money” comes to.
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In response to Mr Ramsey’s question, Tom said it was a “nice chunk of change” but was unable to give the exact number due to a confidentiality agreement.
Upon hearing this, The Ramsey Show host decided to ask the caller how much the mortgage balance will likely be.
Fortunately, Tom was able to provide a breakdown of these numbers to the personal finance expert.
He replied: “When the house is finished, it (the mortgage) will be around $1million [currently around £802,600] and the home will be worth about $2million [£1,605,200] because I’ve already put in a chunk.”
With this information, Mr Ramsey was able to determine the “chunk of change under confidentiality” was higher than $5million (£4million), which Tom refused to outright confirm or deny.
Realising the caller will likely still have a lot of money left over even if he did pay off his mortgage payments, the podcast host shared a technique he uses to make these types of decisions.
Mr Ramsey said: “A good way sometimes to decide if I want to keep something or if I want to invest in something is I reverse engineer it.
“Let’s just pretend your pile of money was $5million [£4million] and you had a $1million [£800,000] mortgage.
“You pay off the mortgage, you’ve got a pile of $4million and you have paid-for a $2million house. That’s our pretend scenario.
“Reverse engineer it: pretend that you had a $2million (£1.6million) paid-for house and you had $4million (£3.2million) in investments. Would you go borrow a million on your paid-for house so that you had $5million (£4million) in investments?”
In response to this, Tom said: “No”. Mr Ramsey’s co-host described the caller’s predicaments as a “good situation to have”.
Those interested can watch more of Dave Ramsey on his YouTube channel.
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