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Stop Chasing the Firetruck: Why Locking In a Mortgage Can Beat Saving Cash for a House
Dave Ramsey says to save cash and pay for a house outright. I respect the discipline behind that advice. But here’s the problem: in the real world, that strategy can feel like a dalmatian chasing a firetruck the faster you run, the farther it gets away.
In this post, I’ll walk you through why locking in a mortgage can actually be the smarter, faster path to owning your home without sacrificing financial stability. I’ll show you the math, the tradeoffs, and a simple framework you can use to decide what’s right for you.
The Real-World Story That Sparked This
I recently posted on Facebook that “Dave Ramsey cost me my house.” That riled people up. For context, I wasn’t blaming Dave. I was calling out a common trap: building equity in all the wrong ways and at the wrong time. One woman commented that she works two full-time jobs 80 hours a week to save cash for a home. I admire that grit. But I also know, from decades of running numbers with clients, that discipline doesn’t beat inflation and appreciation if your money’s sitting in the wrong place.
So I ran the numbers again open-minded, to see if saving cash could compete. The results were even more lopsided than I expected.
The Core Issue: You’re Chasing a Moving Target
Take a starter-home example:
- Target home price today: $200,000
- Conservative appreciation: 4% annually (some markets higher, some lower)
At 4% growth, that $200,000 home is roughly $438,000 in 20 years. It doubles around year 18. If you’re saving cash while paying rent, the house is running away faster than your pile is growing especially after taxes on your savings account interest.
Translation: the longer you wait, the more your down payment and your dream home both drift out of reach.
The Numbers: Saving Cash vs. Locking In a Mortgage
Let’s compare two simplified paths based on a real comment I received.
Saver Profile
- Saving: $1,500/month ($18,000/year)
- Parking cash in a high-yield savings account (taxed)
- Paying rent while saving
Result: At this savings rate, it takes roughly 19 years before the cash pile finally catches the appreciated home price. By then, that “$200,000 house” is no longer a $200,000 house.
Now compare that to buying today with 5% down and a conventional mortgage (even with PMI and today’s rates). If the same person simply redirects the rent + savings to the mortgage, the payoff timeline can drop to about 8 years. Even if they don’t prepay the mortgage and instead invest the difference (earning reasonable returns), they can accumulate enough outside the mortgage to write one big check and wipe out the balance in a similar timeframe.
Key point: locking in the price today stops the runaway effect and gives inflation a job: it devalues the dollars you’ll use to pay off the fixed debt.
Why This Works (Even When Rates Feel High)
People fixate on interest rates. I get it. Rates matter. But they’re not the only lever:
- Price Lock: A fixed-rate mortgage locks today’s price. Appreciation still happens, but now it’s working for you, not against you.
- Inflation Tailwind: As incomes and prices rise over time, your fixed payment gets easier in real terms.
- Optionality and Liquidity: Keeping extra cash outside the mortgage gives you flexibility for emergencies, investing, or business opportunities. Equity trapped in the walls is hard to access when you need it most.
- Tax Considerations: Mortgage interest can carry tax benefits. I don’t base decisions solely on deductions, but the after-tax cost matters.
- Refinance Optionality: If rates drop, you can refinance. If rates don’t, you still benefited from locking the price and riding appreciation.
But What About PMI and “Wasted” Interest?
PMI isn’t ideal, but it’s not the villain people make it out to be. It’s a temporary toll to get you onto the right road. If the choice is between:
- Paying PMI for a while and capturing appreciation, or
- Avoiding PMI but missing the price lock and years of appreciation,
the math often favors getting in and moving forward. And if you’re aggressive about reducing your loan-to-value or your home appreciates you can request PMI removal.
As for interest, remember two things:
- Your alternative has a cost: rent plus lost appreciation.
- You can prepay principal strategically or build an outside investment engine to write a single payoff check later.
When Saving Cash Might Make Sense
There are exceptions. Consider saving cash if:
- You’re within 12–18 months of buying and your market shows flat or declining prices.
- Your income is unstable and you need a larger emergency buffer before taking on a mortgage.
- You’re aiming for a house hack or a unique situation where the timing/value equation is clearly in your favor to wait.
Even then, run the numbers, not the narratives.
A Simple Framework to Decide
Use this checklist to pressure-test your path:
- Market Reality Check
- What is the conservative appreciation rate in your target area?
- At that rate, what will your target home cost in 3, 5, and 10 years?
- Cash Flow Math
- What are you paying in rent vs. what would your PITI + PMI be?
- If you bought, how much could you prepay each month or invest outside the mortgage?
- Liquidity and Risk
- After closing, will you still have 6+ months of expenses liquid?
- Do you have short-term stability (job, family, location) for at least a few years?
- Opportunity Cost
- What’s the rate of return on the cash you’d keep outside the mortgage?
- How does that compare to your mortgage rate after taxes?
- Exit Options
- Could you refinance, house hack, or rent the home if life changes?
- Do you have the flexibility to pivot without panic?
Strategy Options That Actually Work
If you decide to buy now, here are three strong approaches:
1) Prepay the Mortgage Aggressively
- Redirect what would have been rent + savings to principal.
- Target an 8–12 year payoff if the numbers support it.
2) Invest the Difference
- Make minimum mortgage payments.
- Invest the former rent + savings outside the mortgage at a reasonable return.
- When the investment balance exceeds the mortgage balance, pay it off in one check on your terms.
3) Hybrid Approach
- Maintain a healthy emergency fund.
- Split the surplus: some to prepay principal, some to diversified investments.
- Reassess annually based on rates, income, and opportunities.
Common Objections
“But debt is risky.”
Unmanaged debt is risky. A fixed-rate, right-sized mortgage with cash reserves and a plan is a tool, not a threat.
“What if prices fall?”
They might. They also might not. Historically, across decades, time in the market has beaten guessing the bottom. If you buy a home you can afford and plan to hold, you’re not speculating you’re building.
“I just want the peace of mind of no mortgage.”
Peace of mind matters. But so does time. If locking in today means you own your home years sooner and you maintain liquidity along the way you may find peace of mind comes faster, not slower.
The Big Takeaway
Saving cash for a house sounds safe. In an appreciating market, it’s often the opposite. You’re chasing a moving target while inflation and home values sprint ahead. Lock the price. Use a mortgage wisely. Keep liquidity. Let appreciation and inflation work for you, not against you.