Shark Tank’s Kevin O’Leary: The 1/3 mortgage rule for House buyers in 2025

In the world of home buying, Kevin O’Leary, Shark Tank’s straight-talking investor, has some solid advice for 2025 buyers. His message, though simple, has power: don’t spend more than a third of your after-tax income on your mortgage.

That may sound like basic advice, but O’Leary stresses it’s a rule that can help keep people out of financial trouble.

With the housing market changing and interest rates altering, O’Leary’s perspective is particularly relevant. No matter if you’re a first-time homebuyer or simply seeking an upgrade, knowing this rule could be the ticket to a solid financial future.

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The one-third rule explained by Shark Tank’s Kevin O’Leary

According to Shark Tank’s Kevin O’Leary, many buyers fall into a trap when they stretch themselves too thin financially. In a video he uploaded on Instagram, the investor said,

“My advice to anybody is to make sure that you do not pay more than a third of your after-tax income towards a mortgage,”

O’Leary warns that exceeding this threshold can lead to big problems down the road. This rule is about balancing your mortgage with the rest of your life. It’s not just about making the monthly payments, but also about having room for other expenses that come with homeownership.

When you take on too much mortgage debt, the risk of financial strain increases. Shark Tank star adds,

“If you're paying more than a third of your after-tax-free income to service your mortgage, you're putting yourself in a very risky position.”

The key takeaway here is that the mortgage itself isn’t the only cost of homeownership. There are other expenses to consider.

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Additional costs to keep in mind

It’s easy to get caught up in just the mortgage payment when budgeting for a house. But O’Leary points out that taxes, maintenance, and fluctuating mortgage rates can quickly add up.

“You have to live, in addition to maintain the home. People think, ‘Oh, I’ll just pay the mortgage payment on a home,’ but no, there’s taxes, there’s monthly maintenance, and then there’s the risk of variability of the actual mortgage rate.”

These added costs are often overlooked but can have a significant impact on your overall budget.

For example, taxes vary based on location, and maintenance costs can sneak up on you. These are ongoing expenses that should be factored into home-buying decisions. O’Leary’s advice is clear: don’t focus solely on the mortgage and forget about these other essential costs.

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The danger of overextending financially

A major risk that the Shark Tank investor warns about is overextending financially by trying to buy a larger home or a more expensive one than your budget can handle. He says

“Where people get in trouble is that they pay 50% of their income or their dual family income on a mortgage, cause they want their home to be the most important asset.”

This desire to have the “perfect” home can lead buyers to make risky financial decisions.

Many buyers think of their home as an asset without considering the costs beyond the mortgage. This can put you in a squeeze if you don't leave room in your budget for maintenance or taxes.

The point O’Leary stresses is that trying to live beyond your means by dedicating more than a third of your income to your mortgage can have serious consequences.

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Long-term financial health matters

The goal of following the one-third rule is to maintain your financial health in the long run. O’Leary reminds us that paying off your mortgage isn’t just about the short-term sacrifice but about setting yourself up for a stable future. He says,

“That really starts to put a squeeze on them.”

Paying too much toward your mortgage today can lead to financial stress in the future.

The rule also helps ensure that you’re prepared for any unexpected costs that may arise, whether that’s home repairs or changes in interest rates. By keeping your mortgage payment under control, you have the flexibility to deal with life’s financial surprises without panic.

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In the end, it’s all about balance. By not overcommitting to a mortgage, you can still achieve your homeownership goals without sacrificing your financial future. As O’Leary aptly puts it, keeping your mortgage payment manageable is a smart way to live in your home, and still live your life.