Dave Ramsey has a straightforward approach to mortgages and interest rates

With inflation lower and unemployment rising, the Federal Reserve looks poised to cut interest rates when the Federal Open Market Committee (FOMC) meets on September 18.

Personal finance author and radio host Dave Ramsey has some thoughts for home buyers and homeowners about the best way to set up a mortgage if they plan to take advantage of falling loan costs.

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After deciding on a home to buy, Ramsey believes there is one financial decision that stands above all others when choosing a mortgage. And while he admits some may be skeptical about whether they can afford it, Ramsey explains his advice on the best option.

The personal finance coach first clarifies the differences between a 15-year and a 30-year mortgage and then weighs in with his recommendations.

A 30-year mortgage allows for lower monthly payments, but will bring with it a higher interest rate on your loan. But because you’ll be making payments over a longer period of time, the long-term effect will be to pay your bank .a significantly higher amount in interest.

The main challenge with a 15-year mortgage is that one’s monthly payments will be higher. But with a lower interest rate, a homebuyer will pay down the principal at a much faster rate – and that will result in paying significantly less interest over the life of the loan and a home that will be paid off in half the time .

Dave Ramsey explains why a 15-year mortgage is a homebuyer’s best bet

Ramsey makes it clear that a higher monthly mortgage payment is a better option in the long run.

The Personal Finance Coach recommends a mortgage payment equal to or less than 25% of your monthly income. And that includes property taxes and homeowner association (HOA) fees.

To make this work financially, Ramsey has a stern warning: Your expectations about the type of home you’re looking for will need to be adjusted accordingly. And the importance of saving for a bigger down payment before you buy your home comes into play to lower your monthly mortgage costs.

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Some people think, Ramsey explains, that they should choose a 30-year loan and then simply make large principal payments as they can. They think they can pay off the mortgage this way in 15 years anyway.

But Ramsey cautions that in the real world, and even with the best of intentions, this rarely happens.

“Why? Because life happens instead,” he wrote on Ramsey Solutions. “You might decide to keep that extra pay and take a vacation. Or maybe it’s time to upgrade your kitchen. How about some new cabinetry? Either way, there’s always a reason to spend that money elsewhere part.”

With a 15-year mortgage locked in from the start, the temptation to spend money on unnecessary expenses is simply not a viable option.

A man is seen standing in front of a house in a row of them. Personal finance personality Dave Ramsey recommends a 15-year mortgage when buying a home.

David McNew/Getty Images

Ramsey explains the importance of building equity in your home quickly

Equity in real estate such as this is the value of the home, with the amount owed on it subtracted from that value.

That’s why it’s important to spend your money on principal rather than interest rate payments.

“On the other hand, the lower monthly payments of a 30-year mortgage will make you pay interest much more slowly,” Ramsey wrote. “So less of your monthly payment will go towards principal.”

Related: Dave Ramsey has some powerful new words about buying a home and real estate

Ramsey makes it clear that this approach leads to a fundamental way to build financial security – avoiding money debt.

“The shortest path to wealth is to avoid debt,” Ramsey wrote. “And the best way to do that is to either buy a home with cash or use a 15-year mortgage, which has the lowest total cost — and keeps borrowers on track to- and pay off the house fast.”

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