Dave Ramsey strongly advises against using home equity loans or HELOCs, viewing them as dangerous, "stupid" debt that puts your home at risk. He advocates for building wealth through owning your home outright, not using it as a piggy bank. Instead of borrowing, he recommends saving for emergencies, working extra, and paying off debt. Ramsey Solutions +3
Dave Ramsey is a well-known personal finance expert who is staunchly against borrowing money, including through home equity loans or HELOCs. Ramsey says he would never recommend a home equity loan or line of credit.
The Ramsey 25% rule is a personal finance guideline from Dave Ramsey, stating that your total monthly housing costs (mortgage principal, interest, taxes, insurance, HOA, PMI) should not exceed 25% of your monthly take-home pay, preventing you from becoming "house poor" and allowing for savings, investing, and financial freedom. It's a guideline for building a strong financial foundation, not a strict rule, though some find it difficult in high-cost areas.
Ramsey states that beating the market is easy with his asset allocation. You get 12% per year, take out 8%, and leave 4% to keep compounding.
To be fair, Ramsey does not advise paying off your mortgage as a first step. He wants you to pay off all of your other debt first and then start setting aside 15% of your money to stick in mutual funds. Only after you do these things does he tell you to pay off your mortgage.
The 3-7-3 Rule in mortgages isn't a loan type but a federal timeline from the TILA-RESPA Integrated Disclosure (TRID) rule, ensuring borrower protection by mandating disclosures within 3 business days of application, a 7-business-day wait between the initial Loan Estimate and closing, and another 3-day wait if significant changes (like APR) occur, giving borrowers time to review costs before committing to a loan.
For those nearing retirement age, though, Orman offers different advice: If you're in your forever home, pay off your mortgage by the time you retire. Considering that baby boomers own 38% of America's housing stock—and more than half plan to never sell—is an important caveat.
Your $500,000 can give you about $20,000 each year using the 4% rule, and it could last over 30 years. The Bureau of Labor Statistics shows retirees spend around $54,000 yearly. Smart investments can make your savings last longer.
Ramsey focuses on discipline, structure and momentum. Orman emphasizes security, flexibility and long-term planning. The following 10 examples show how differently they handle everything from debt to investing, making it easier to see which approach fits a life and financial goals.
A 15-year fixed-rate conventional mortgage is the only kind of loan we ever recommend at Ramsey. It keeps you on track to pay off your house fast and has the lowest total cost.
Dave Ramsey's Rule of 72 is a simple mental math shortcut to estimate how long it takes for an investment to double: divide 72 by the annual rate of return (as a whole number, e.g., 8 for 8%) to get the approximate number of years for your money to double. For example, at a 12% return (Ramsey's often-used figure), your money doubles in 6 years (72/12=6), while at 8%, it doubles in 9 years (72/8=9). It's a motivational tool to show the power of compound interest, though his use of an optimistic 12% average return is a point of debate.
Below are some of the smartest and most strategic ways to make the most of your home's equity.
The debt snowball method is a debt-reduction strategy where you pay off debt in order of smallest balance to largest balance, gaining momentum as you knock out each balance. When the smallest debt is paid in full, you roll the minimum payment you were making on that debt into the next-smallest debt payment.
In addition to its one-size-fits all approach, the 4% rule has some underlying assumptions that could mean it's too conservative for some retirees. For example, the rule has no flexibility to account for the fact that a retiree could reduce spending in years of low or negative market returns.
And to go one step further, we recommend dividing your mutual fund investments equally between four types of funds: growth and income, growth, aggressive growth, and international.
The "27.39 rule" (often rounded to $27.40) is a simple financial strategy to save $10,000 in one year by consistently setting aside $27.40 every single day, making it an achievable micro-saving habit to build wealth or an emergency fund. It turns the daunting goal of saving $10,000 into a manageable daily action, emphasizing consistency over large lump sums.
The average age to pay off a mortgage in the U.S. is around 62, with many becoming mortgage-free in their early 60s, coinciding with or just after typical retirement age, though figures vary by source. While some financial experts suggest paying it off by 45 for aggressive investing, data shows a significant portion of homeowners, especially older ones (60+), are mortgage-free, but increasingly, older adults (60s, 70s, 80s) carry more mortgage debt than previous generations, according to Marketplace.