Financial expert Dave Ramsey answers your top mortgage questions

Mortgages can be complicated, but it’s important to know your options. Financial expert Dave Ramsey provides answers to your home-buying questions.

How much should you save for a down payment?
Putting at least 10 percent down on a home is great, but 20 percent is even better because you won’t have to pay private mortgage insurance (PMI). The PMI is an extra cost added to your monthly payment that doesn’t go toward paying off your mortgage.

Which home mortgage option is right for you?
Ramsey recommends choosing a 15-year, fixed-rate mortgage. You’ll pay thousands more in interest if you do a 30-year mortgage. For a $400,000 loan, that could mean a difference of more than $140,000. But a 15-year term does come with a higher monthly payment, so adjust your home-buying budget to get your mortgage payment to 25 percent or less of your monthly take-home pay.

How do I know when to refinance?
You’ll need to do a break-even analysis. Estimate how long you plan to stay in your home and at what point the monthly savings would make up for closing costs. Refinancing only makes sense if you’ll be in the house long enough to see the savings. Let’s say you’re five years into a 15-year mortgage and you want to lower your monthly payment by refinancing. If the new loan decreases your payment by $200 per month but the cost of refinancing is $4,000, it will take you 20 months to recoup that cost. That’s where you would break even. Everything beyond that 20-month, break-even point will be cost-savings as long as you don’t extend the term of the loan.

Figuring out when to refinance your home doesn’t have to be confusing. Ramsey’s friends at Churchill Mortgage can help you determine if refinancing your mortgage makes sense.

The Dave Ramsey Network runs Monday-Friday, 1-5 pm ET on SiriusXM Triumph (Ch. 32).

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