“You Have a Good Nose for Stupid”

Summary

Podcast Summary: The Ramsey Show Highlights – “You Have a Good Nose for Stupid”

Episode Information

• Title: You Have a Good Nose for Stupid
• Host/Author: Ramsey Network
• Release Date: January 12, 2025

Overview In this episode of The Ramsey Show Highlights, host Dave Ramsey engages with a caller named Tammy, who expresses concerns over her husband’s proposal to enter a shared appreciation mortgage when purchasing a home. The discussion delves into the intricacies of shared appreciation mortgages, the potential pitfalls of such financial agreements, and the merits of alternative approaches like paying cash for a home. The episode concludes with praise for Tammy's decisive stance and highlights the importance of trust and communication in financial decision-making within marriages.

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1. Caller Tammy’s Concern: Shared Appreciation Mortgages

Timestamp: [00:09] – [00:50]

Tammy’s Inquiry: Tammy initiates the conversation by voicing her apprehension about her husband’s desire to opt for a shared appreciation mortgage. She questions the viability of this financial arrangement, seeking an honest evaluation of its positives and negatives.

Tammy: “I would have just like to know what you don’t hold back, Tammy. [00:09]... Shared mortgage negative and positives. And is it a good thing?” [00:37]

2. Dave Ramsey’s Response: Dismissing Shared Appreciation Mortgages

Timestamp: [00:50] – [07:14]

A. Understanding Shared Appreciation Mortgages Dave Ramsey begins by affirming Tammy’s instincts, labeling her judgment as correct and commending her ability to recognize flawed financial strategies.

Dave Ramsey: “It is not a good thing. Your instinct is correct. You win the argument.” [00:50]

B. Explaining the Mechanics and Drawbacks Ramsey elucidates that a shared appreciation mortgage involves the mortgage company lowering the interest rate or down payment in exchange for a share in the property’s future appreciation. This means that if the property's value increases, a portion of that gain is forfeited to the lender.

Dave Ramsey: “…you give up a portion of the increase in value.” [00:57]

He provides a concrete example:

Dave Ramsey: “So you buy a $300,000 house and it goes up to $500,000. The sum of that $200,000 increase goes back to the mortgage company...” [03:16]

C. The Risks of Being Entrapped Ramsey outlines the primary disadvantages:

• Difficulty in Refinancing: It becomes challenging to refinance the mortgage without addressing the shared appreciation component.
• Challenges in Selling: Selling the property becomes complicated as a portion of the appreciation must be shared with the lender.
• Loss of Growth: The overall financial growth from the property’s appreciation is diminished due to the lender’s claim.

Dave Ramsey: “It can trap you and make it very difficult to refinance... And it can also make it difficult to sell.” [03:04]

D. Comparing with Other Shared Financial Agreements Ramsey draws parallels with student loan income-share agreements to illustrate the concept of trading future financial gains for immediate benefits, emphasizing that such trade-offs are typically unfavorable.

Dave Ramsey: “…you’re selling off your future for a little bit better deal in the present. And that’s never a good trade.” [03:06]

E. Advocating for Paying Cash Ramsey strongly advocates for paying cash for the home, especially when Tammy and her husband have substantial liquid assets. He underscores that this approach avoids the pitfalls of shared appreciation mortgages entirely.

Dave Ramsey: “Pay cash for your house. You have the money. You are exactly right.” [04:35]

F. Supporting Evidence: Millionaire Study Referencing a comprehensive study of over 10,000 millionaires in North America, Ramsey points out that none of the millionaires achieved their status by leveraging mortgages to invest elsewhere, effectively debunking the husband’s strategy.

Dave Ramsey: “The number of millionaires that said they did that out of 10,000 was zero.” [06:00]

G. Emphasizing Trust and Communication Ramsey highlights the importance of trust and communication in marital financial decisions. He cites Proverbs 31 to illustrate the value of a trustworthy and prudent partner in financial matters.

Dave Ramsey: “…Proverbs 31 says, who can find a virtuous wife for her worth is far above rubies... Now that doesn’t mean he can’t argue with you about this.” [06:09]

H. Recommendation and Encouragement To further assist, Ramsey recommends the book Baby Steps Millionaires for Tammy and her husband, reinforcing his confidence in Tammy’s judgment and offering resources to guide them towards better financial decisions.

Dave Ramsey: “I think it’ll help your husband with this. He’s trying to do a good thing a bad way. It’s a bad move. You smelled it out. Congratulations.” [07:14]

3. Listener James Praises Tammy’s Judgment

Timestamp: [07:14] – [08:02]

James’ Compliment: Another listener, James, chimes in to commend Tammy’s clarity and decisiveness, suggesting that her approach would make her an excellent co-host alongside Dave Ramsey. He highlights how Tammy effectively communicates her stance without hesitation.

James: “I think that was one of my favorite calls that I've ever heard because she's on it. She makes no, no mistakes about what she thinks. And I love her.” [07:14]

Dave’s Agreement: Dave echoes James’ sentiments, praising Tammy’s communication skills and expressing enthusiasm about the possibility of collaborating with her.

Dave Ramsey: “It would be great radio.” [07:57]

4. Conclusion and Final Remarks

Timestamp: [08:02] – [08:01]

As the episode wraps up, Dave reiterates his appreciation for Tammy’s insightful participation and underscores the importance of making informed financial decisions. He encourages listeners to download the Ramsey Network app to further engage with Ramsey’s financial guidance.

Dave Ramsey: “Very fun. You’re amazing lady. Well done.” [08:02]

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Key Takeaways:

• Shared Appreciation Mortgages Are Risky: They involve giving up a portion of the property's future appreciation, which can hinder refinancing and selling.
• Paying Cash is Preferable: When feasible, purchasing a home outright avoids the complications associated with mortgages and shared appreciation agreements.
• Trust and Communication Are Crucial: Open dialogue and mutual trust in financial decisions strengthen marital relationships and ensure sound financial planning.
• Avoid Trading Future Gains for Present Benefits: Long-term financial growth should not be compromised for immediate conveniences or reduced interest rates.

Notable Quotes:

• Dave Ramsey: “You have a good nose for stupid.” [00:56]
• Tammy: “I have to know what is this and the, the negatives and the positives, if there is any positive. That's my question.” [00:37]
• James: “I think that was one of my favorite calls that I've ever heard because she's on it. She makes no, no mistakes about what she thinks. And I love her.” [07:14]

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Final Thoughts This episode of The Ramsey Show Highlights serves as a compelling discourse on the dangers of unconventional mortgage arrangements and underscores the timeless wisdom of traditional financial prudence. Through Tammy’s candid inquiry and Dave Ramsey’s thorough explanation, listeners gain valuable insights into safeguarding their financial futures by making informed and conscientious home-buying decisions.

Transcript

[Dave Ramsey]

Brought to you by the Ramsey Network app. Download today. To go further with Ramsey, I just.

[Tammy]

Have a quick question. My husband and I are actually wanting to buy a home and he wants to do this shared mortgage and he's trying to convince me that it's a great thing and that it's so wonderful and it sounds very stupid to me. And so I would just like to know what you don't hold back, Tammy.

[Dave Ramsey]

Tell us how you really feel.

[Tammy]

Well, I wanted to know what is this and the, the negatives and the positives, if there is any positive. That's my question. Shared mortgage negative and positives. And is it a good thing?

[Dave Ramsey]

It is not a good thing. Your instinct is correct. You win the argument. Now let's talk about why.

[Tammy]

Praise the Lord.

[Dave Ramsey]

Yeah, let's talk about why. You have good news for you have a good nose for stupid. So you're like my wife in that regard. But so a shared appreciation mortgage is what we're talking about. And what this is is the mortgage company, in return for a lower interest rate and in return usually for lesser down payment, you give up a portion of the increase in value. And so you buy a $300,000 house and it goes up to 500,000. The sum of that $200,000 increase goes back to the mortgage company when you refinance or when you sell. So you do not get all of the growth in value. The downside is two things. One is it can trap you and make it very difficult to refinance if you were able to and get rid of them. Okay, get rid of that loss of growth. And it can also make it difficult to sell. And of course, the third thing is, is you gave up some of your growth and it's not the trade offs not worth it is what it amounts to. I don't know why he's being pulled into that. That's very strange because the thing is very, very few mortgages, very, very, very few people do this. I thought the program was actually dead until a few months ago. I heard somebody bring it up. I think somebody's out there promoting it or something because I hadn't even heard of it in a long time. First time I heard of it was back in the 90s and, but and high interest rate environment, you know. And so, you know, interest rates were really high and people were trying to get the rate down by giving up some of their future appreciation. So Tammy, kind of think of it this way. Have you heard these things with student, some of the student loan things where you can go to a certain college, and you don't pay as much to go to the college, but you give up some of your income to that college.

[Tammy]

No, I've never heard of that.

[Dave Ramsey]

Same deal, same kind of a thing here. You're selling off your future for a little bit better deal in the present. And that's never a good trade.

[Tammy]

I'm sorry, you're saying that once, if you ever decide to sell or if you ever decide to whatever, you have to give them a portion of the value.

[Dave Ramsey]

Yeah, of the. Of the increase in value. Yes. So if you bought a $300,000 house and it went up in value to 500 and you had a 20% shared appreciation as an example, then you would give up 20% of that $200,000 growth or about $40,000 when you refinance to get rid of that mortgage. By the way, if you wanted to just pay it off, if you start making a lot of money and you were working the Ramsey plan, you wanted to pay it off, you got to pay off that appreciation that you owe them to, not just the loan balance.

[Tammy]

So here's the idiotic thing to me is we have $400,000 or whatever in cash liquid. We could just buy the home. But he doesn't want to do that. He wants to go through the bank because in his mind he's keeping his money and making some money from the bank. And I'm like, this is. Why would the bank do that? That makes no sense to me.

[Dave Ramsey]

Well, the bank did it because it's good for the bank, but it's not. Your husband's wrong. You're right. Pay cash for your house. You have the money. You are exactly right.

[Tammy]

I told him.

[Dave Ramsey]

And he's listening to his wife.

[Tammy]

Amen. In his mind, he's thinking he's keeping this money for somehow in his possession or something. And I'm like, but I don't understand why we need to go through the bank and loan the bank our money to get a mortgage through the bank.

[Dave Ramsey]

Here, here. Let's try that. Let's try a couple things. Okay? Number one, you could say this. Let's pay cash for the house. If two years from now, after we pay cash for it, you want to talk about getting a mortgage, we'll talk about it. You know how hard it is for somebody emotionally to put a mortgage on a paid for house? He'll never do it. Okay, so try, honey, try my way. Pay cash for it for two years and then we'll talk about it. So that's thing number One thing. Number two. All right, we did the largest study of millionaires ever done in North America. I say this all the time because we did. We studied 10,000 plus millionaires. The number of millionaires, that's out of 10,000 of them. That said we became a millionaire by borrowing money on our home so that we could invest what your husband's talking about. The number of millionaires that said they did that out of 10,000 was zero.

[Tammy]

Okay.

[Dave Ramsey]

So the data says. The facts are that your husband's theory is wrong. Okay.

[Tammy]

Okay.

[Dave Ramsey]

One last thing. And I'm going to keep throwing stuff at him and at you too. But here's the thing. So when I went broke, I did whatever I wanted to do because I'm really smart with math. And I did some stupid butt stuff like he's trying to do. And I found in The Bible Proverbs 31 says, who can find a virtuous wife for her worth is far above rubies. The heart of her husband safely trusts her and he will have no lack of gain. Now that doesn't mean he can't argue with you about this. He should. And challenge your theory. He should. I do with Sharon with my wife. But I trust my wife to have common sense and input. Ken trusts Stacy to have common sense and input. Hang on. I'm going to give you a copy of the book Baby Steps Millionaires for you and your husband to look at. I think it'll help your husband with this. He's trying to do a good thing a bad way. It's a bad move. You smelled it out. Congratulations.

[James]

I. I'm going to say what I think a lot of Americans are thinking right now. That Tammy would be a great co host. One time with you. Were you not thinking that, James? I mean, was she let off with stupid with the same passion that Dave says that I thought, I thought Tammy. America would love Tammy. I love Tammy. She's. She's a treasure. I just wanted to say that I think that was one of my favorite calls that I've ever heard because she's on it. She makes no, no mistakes about what she thinks. And I love her.

[Dave Ramsey]

I think she's great. I. I don't think communication is a problem in there.

[James]

No. You, Tammy, you and Tammy co coaching. Someone would melt the Internet. It would melt YouTube picture Dave fired up and Tammy a little fired up.

[Dave Ramsey]

It would be great radio.

[James]

You're awesome, Tammy.

[Dave Ramsey]

Very fun. You're amazing lady. Well done. Brought to you by the Ramsey Network app Download today to go further with Ramsey.