"You're Signing Up For Financial Suicide"

Summary

The Ramsey Show Highlights: "You're Signing Up For Financial Suicide"

Release Date: May 15, 2025
Host: Ramsey Network
Duration: Under 10 Minutes

In this compelling episode of The Ramsey Show Highlights, featured speakers Dave Ramsey, Rachel Cruze, and Ken Coleman delve into the precarious situation faced by first-time homebuyers Jerry and his wife. The discussion centers around the financial implications of their mortgage choice and offers invaluable advice for couples navigating similar dilemmas.

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1. The Homebuying Dilemma

Jerry’s Situation
Jerry reaches out for advice, sharing that he and his wife are first-time homeowners contemplating the purchase of a home. Their proposed mortgage would consume 45% of their monthly take-home income after taxes for the first three years, primarily due to an adjustable-rate mortgage (ARM). The housing market in their desired area is booming, with properties selling rapidly and major developments underway. However, Jerry and his wife are divided on whether to proceed with the purchase now or wait, potentially facing higher prices and the continued strain of their current apartment situation.

Notable Quote:
“We’re just in two separate minds about do we take the plunge now or wait a year and then maybe the price goes up even further and then, you know, we’re just stuck in the apartment.” – Jerry [00:10]

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2. Evaluating the Mortgage Structure

Breakdown of the Mortgage Terms
Rachel Cruze questions Jerry about the mortgage details, prompting him to explain that they are utilizing a 2:1 option, projecting an initial lower payment that escalates after the third year. However, Ken Coleman highlights that the mortgage is not only consuming a large portion of their income but is also an adjustable-rate mortgage, introducing unpredictability in future payments.

Notable Quotes:
“It’s called an adjustable rate mortgage. It’s going to adjust. You don’t even know.” – Ken Coleman [01:29]
“The mortgage is going to be $5,200 after the third year for the next 30 years.” – Jerry [01:41]

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3. The Risks of Adjustable-Rate Mortgages

Uncertainty and Financial Strain
Ken Coleman vehemently criticizes the choice of an adjustable-rate mortgage, describing it as a form of "financial suicide." He emphasizes the unpredictability of future interest rates and the potential for significantly higher payments, which could lead Jerry and his wife into a cycle of debt.

Notable Quote:
“Then don’t do this deal. It’s really, it’s asinine. You are signing up, you’re playing, you’re signing up for financial suicide.” – Ken Coleman [02:36]

Dave Ramsey reiterates his stance on financial prudence by advocating for term life insurance over complex financial products, subtly underscoring the importance of straightforward, manageable financial decisions.

Notable Quote:
“I only recommend term life insurance because it’s simple, affordable coverage and you should get it only from Zander Insurance...” – Dave Ramsey [01:47]

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4. Future Financial Considerations

Planning for Life’s Changes
Rachel Cruze brings attention to the significant life changes that often follow homeownership, such as having children and the associated costs like daycare. She advises Jerry to consider these future expenses, which could further strain their finances if they opt for an overly burdensome mortgage.

Notable Quotes:
“What happens when you decide to have a baby and what happens when suddenly a wife or a spouse decides to stay home...” – Rachel Cruze [04:32]
“You didn’t tell us. If you have no other debt, my guess is you probably already have other debts.” – Rachel Cruze [06:01]

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5. Advice for Sustainable Homeownership

Recommendations for New Couples
Both Ken Coleman and Rachel Cruze provide concrete advice for couples in Jerry’s situation. They emphasize the importance of ensuring that mortgage payments do not exceed a manageable percentage of take-home income. Specifically, they recommend:

• Avoiding ARMs: Opting for fixed-rate mortgages to ensure payment stability.
• Strengthening Financial Foundations: Building an emergency fund, paying off existing debts, and saving for a substantial down payment before purchasing a home.
• Realistic Budgeting: Ensuring that housing costs do not surpass 25% of take-home pay to maintain financial flexibility.

Notable Quotes:
“You buy a fixed rate 15 year where the payments no more than one fourth of your take home pay.” – Ken Coleman [06:17]
“Most people get married and they plan on having children and daycare is expensive.” – Rachel Cruze [06:53]

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6. The Perils of “House Fever”

Emotional vs. Financial Decisions
Ken Coleman warns against the phenomenon of “house fever,” where the emotional desire to own a home overrides sound financial judgment. He compares it to the unquestioned pursuit of higher education degrees, highlighting the importance of evaluating the true value and affordability of significant financial commitments.

Notable Quotes:
“You’re so desperate to buy a house in that particular neighborhood, you’ve got house fever and you need to go take a cold shower.” – Ken Coleman [06:01]
“Home ownership is good. It’s not all good when you do it wrong. It’s all bad.” – Ken Coleman [08:02]

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7. Conclusion: Prioritizing Financial Health

Final Takeaways
The episode concludes with a strong admonition against proceeding with an unaffordable mortgage. Dave Ramsey underscores the importance of affordable term life insurance as part of a solid financial plan, tying back to the theme of making prudent financial choices to secure long-term stability.

Notable Quote:
“If anyone depends on your income, you need affordable term life, never cash value insurance. Visit Xander.com today for quotes.” – Dave Ramsey [09:26]

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Key Insights and Takeaways

• Affordability is Crucial: Housing costs should align with financial capacity, avoiding overextension that can lead to debt and financial instability.

• Preference for Fixed-Rate Mortgages: Opting for fixed-rate over adjustable-rate mortgages can provide payment predictability and financial security.

• Future Planning: Consider potential life changes and associated costs when committing to a mortgage to ensure long-term financial health.

• Emotional Discipline: Resist the allure of “house fever” by prioritizing financial prudence over emotional desires in homebuying decisions.

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This episode serves as a crucial reminder for prospective homeowners to meticulously assess their financial situations and avoid decisions that could jeopardize their long-term financial well-being. By following the expert advice of Ramsey Network’s seasoned hosts, listeners can navigate the complexities of homeownership with confidence and fiscal responsibility.

Transcript

[Dave Ramsey]

Brought to you by Zander Insurance. Compare rates from top term life insurance companies [e-mail].

[Jerry]

Bit of a situation me and my wife are in right now. We're first time homeowner buyers trying to purchase a home. After doing the Math, the first three years of mortgage comes around to 45% of our monthly takeaway income after taxes. The area where the house is being built is really hot right now. Everything around is being sold. Major developments going on in that area. But I guess we're just in two separate minds about do we take the plunge now or wait a year and then maybe the price goes up even further and then, you know, we're just stuck in the apartment.

[Rachel Cruze]

Why did you say it would only be that much for the first three, four years?

[Jerry]

Depending on how the the loan is working out. So we doing the 2:1 option. So first year.

[Ken Coleman]

So this is not only 45%, it's an adjustable rate 30 year mortgage.

[Jerry]

Right. So if you're taking the average, I guess from the third year onwards is going to be.

[Ken Coleman]

You don't have any idea.

[Jerry]

It's about. No.

[Ken Coleman]

It's called an adjustable rate mortgage.

[Jerry]

Yes.

[Ken Coleman]

It's going to adjust. You don't even know.

[Rachel Cruze]

How old are you?

[Jerry]

28.

[Rachel Cruze]

What's on fire, dude? That would cause you to be this stupid? Yeah. Yes. What Dave said.

[Jerry]

No, no. The mortgage is going to be 5200 after the third year for the next 30 years.

[Ken Coleman]

Yeah. So what do you guys make?

[Dave Ramsey]

I only recommend term life insurance because it's simple, affordable coverage and you should get it only from Zander Insurance because they work for you, not the insurance companies. Zander compares all the top term plans to save you money so you don't get ripped off with insurance that they market like a so called investment term from Zander's the only life insurance I would get from my family. It's all I've ever bought and all I've ever recommended. Go to Xander.com or call 800-356-4282.

[Ken Coleman]

So what do you guys make?

[Jerry]

We take home 11250 after taxes a month.

[Ken Coleman]

And do you think your income is going to double in the next year?

[Jerry]

No.

[Ken Coleman]

Then don't do this deal. It's really, it's asinine. You are signing up, you're playing, you're signing up for financial suicide.

[Rachel Cruze]

The truth is, and earlier in the show we had Brian Buffini on and we were talking about this very thing. Okay, real estate. I get it. It feels very expensive sometimes it feels out of Touch. Sometimes it feels like it'll never happen, but that's not true. However, your time horizon for when it will happen may be different from what you expected.

[Ken Coleman]

And your neighborhood might be different from where you.

[Rachel Cruze]

That's also true. You said it's a very hot neighborhood. Neighborhood they're building.

[Ken Coleman]

You may not be moving into that neighborhood. You obviously can't afford it.

[Rachel Cruze]

So what would it look like to look in a different neighborhood? Or what would it look like to just change your expectation a little bit? Because to put yourself in a situation where you're at 50% for you to be trying to sustainable, convince us that that's a good idea.

[Ken Coleman]

It's not sustainable. You know, everything that comes up because you don't leave enough room in your budget, because you're what we call house poor, you're signing up for poverty. And everything that comes up that you guys want to do or need to do that you don't have room for in the budget is going to be new debt. And so you're going to run up a pile of credit card debt, a car debt, and you're going to run up some other debts here and there because you pinched yourself with this house payment. And let me tell you, the way the indexes are set on adjustable rate mortgages, they're set, the interest that they give you going in is a bait and switch because it's not even covering the index. Meaning if interest rates don't go down, they would have. Interest rates would have to go down for your payment to remain the same. So there's a very high likelihood this payment's going up substantially as soon as it's ready to adjust. And so you've signed up for a rat and a wheel. That's skinny. That's what you've signed up for.

[Rachel Cruze]

And let me tell you something else, Jerry, because we get this call all the time. You're married, probably newly married. Yes. What happens when you decide to have baby and what happens when suddenly a wife or a spouse decides to stay home and say, you know what? I want to stay home with the baby. Now you are locked in.

[Ken Coleman]

You can't.

[Rachel Cruze]

And so the best advice I can give you is to think about that future.

[Ken Coleman]

Oh, and you can't afford daycare either. There's not room in there.

[Rachel Cruze]

That's what I'm saying. You're not. There's no foresight here. And we're here to help you with that. You gotta think about daycare.

[Ken Coleman]

You guys are so desperate to buy a house in that particular neighborhood, you Got house fever and you need to go take a cold shower. This is a no. It's a hard pass no. And it's not because I don't want you to have a house. I don't want the house to have you. This transaction is going to screw up the next decade of your life, minimum, if you do it. You can just go back and say, the mean old nasty guy in Tennessee told me that this was going to screw up my life. And he was right. You can remember that if you go forward with this. Please, son, I love you. Please don't do this to yourself and to your new wife. You're signing up for trouble. You can't afford to live in that neighborhood today. We know that because you had to put it on a 30 and you had to put it on adjustable and it's still too high a percentage of your take home pay. There's nothing in this formula that makes sense. Everything in here screams don't do it, including me over and over. Was I unclear?

[Rachel Cruze]

You weren't. And we don't even know. Jerry, you didn't tell us. If you have no other debt, my guess is you probably already have other debts.

[Ken Coleman]

Yeah, so we're not the cosmic killjoys here. We're trying to keep you from signing up for what you think is a dream. And we're real. Sure it's a nightmare.

[Rachel Cruze]

Oh, it is.

[Ken Coleman]

That's all it is. We just want good things for you, brother. I want you to reconsider this and not do it. And then I want you to back up, pan back, zoom out, start looking further out. Look for something a little older. Get your foot in the door on homeownership after you're debt free, have an emergency fund and you put down a good strong down payment and it's. You buy a fixed rate 15 year where the payments no more than one fourth of your take home pay. And so the translation is it's going to be a lot less expensive house than the one you're looking at is going to be nearly as cool as the one you're looking at. But you're brand new, married in Dallas freaking Texas.

[Rachel Cruze]

And for new. Listen for new couples, that's some of the best advice that I can think of, what Dave just said. And think about what your life will be once you have children. Because most, you know, I'm not saying it's for everybody, but most people get. They get married and they plan on having children and daycare is expensive. If you have two kids, you're at least spending $2,000 a month on daycare. Think about that now. Think about what? Does somebody want to stay home? Could that possibly be in the future? Because a lot of times we say, no, I'm going right back to work. And you don't know what you're going to do. So please consider that. Because I hate those calls, Dave, when they call in and they just, they, they feel like they're between a rock and a hard place because there was no foresight on really what they wanted their life to look like in the future.

[Ken Coleman]

Well, there's, it's, it's all becomes about the house fever.

[Rachel Cruze]

Yeah.

[Ken Coleman]

And it's got to buy a house. You got to buy a house. You got to buy a house. Everybody's got to buy a house. And everything makes sense if you buy a house. It's the same stupid thing that we sign up for with education. No matter what it costs, I got to go get a degree. No matter what it costs, I got to get a degree. Because you can't get ahead without a degree. And so I'm going $200,000 to get a degree in left handed puppetry. And it'll all work out. It's the same kind of. It becomes illogical because you're assigned a value to something that it doesn't have.

[Rachel Cruze]

That's right.

[Ken Coleman]

Home ownership is good. It's not all good when you do it wrong. It's all bad. And you know, don't, don't do this. That's why they call them brokers. Broker and broker and broker. That's what you're going to be. Don't do this. Don't do this. And so I'm sorry if I disappointed your realtor or your builder, but they shouldn't have told you to buy this house. A person, person with ethics would look at a young married couple and go, honey, you can't afford this. You don't need to do this.

[Rachel Cruze]

Yeah.

[Ken Coleman]

And instead they're just trying to get a commission.

[Rachel Cruze]

Yeah. So it will be more painful to get this house and have to let it go in two years. You know what I'm saying? They just say no now.

[Ken Coleman]

Closed on.

[Rachel Cruze]

Yeah.

[Ken Coleman]

But it puts strain on your relationship. It puts strain on your career decisions going forward. It puts strain on everything. You do not have margin in this deal.

[Rachel Cruze]

And then you start to reason the house because it's got you locked down. Yeah, it's, it's not good. Well, not good.

[Ken Coleman]

Maybe she resents him for talking her.

[Rachel Cruze]

Into the house or he resents her for saying, I want I want, I need, I need Remember I need, I need, I want Remember that from.

[Ken Coleman]

Oh, yeah.

[Rachel Cruze]

What about Bob?

[Ken Coleman]

That was it. That was it. That was the movie.

[Dave Ramsey]

Wow, look at your call back.

[Ken Coleman]

Look at that. I want, I want, I want, I need, I need, I need. I knew you'd get that good old movie. Richard Dreyfus, Bill Murray.

[Rachel Cruze]

That's right.

[Ken Coleman]

This is the Ramsey Show.

[Dave Ramsey]

If anyone depends on your income. You need affordable term life, never cash value insurance. Visit Xander.com today for quotes.