Saving for downpayment

[Anonymous]

We're hoping to move next (2014) spring and are saving as much as we can now, ends up being about 1k/month.

We'll have to sell our current place, which I think is about at the point of breaking even ($100k lower than when we bought it, sniff sniff). We certaintly won't be walking away with very much next year, 10-20k max.

So what do i do with that 1k/month. Do I pay down the mortgage (rate approx 3.5%) or put it into savings (rate 0.5%). The former seems logical, except I've learned the 'real estate is a risk' lesson far too well.

thanks!


PS: If the 'saving too much poster wants to help me out, that'd be great - just think of us as a new savings account

[Anonymous]

I would probably put it in a savings account. especially if you are buying a new place, or otherwise need will need a chunk of money for moving.

If you had plenty of money in savings for a downpayment, moving, closing costs, etc. and you were confident the house would sell quickly, then I guess it would be make sense to put it in the house.

The big difference is that money you put in the house is not liquid-- you probably won't get it back until it sells-- so if you can come up with any situation where that is a problem it is probably worth forgoing the small amount of extra interest (maybe $250?) in exchange for being able to access that money.

[Anonymous]

Keep it in cash - savings acct, money market, cd.

[Anonymous]

Thanks - I'll keep the money in savings.

I hadn't thought about accessing the money when it comes time to buy. It'll be our first time buying and selling at once, I'm already dreading it!

[Anonymous]

Even if you keep your savings as cash, won't the next purchase of a house be contingent on selling your current one?

Sounds like paying down the mortgage would effectively be the same thing... probably better, when you figure you are paying more in interest than you'd be saving... while reducing your risk by lowering your debt.

Just my 2c.

[Anonymous]

Invest it somewhere where you can make more than 3.5% in interest. Sure it's risky but not impossible with a good investment advisor.

[Anonymous]

How far into the mortgage are you? If it's recent enough you're paying tons of interest, put the grand into the mortgage. It may be 3.5%, but up to 80% of your regular payment may be going to interest rather than principle due to amortisation. Have a look at your statement.

Do not put more than half of it into anything risky, and only if you're willing to delay your move if the worst happens.

Are you maxing out your 401k? If not, have a look at the loan requirements. If they're favourable (don't have to pay back immediately if you leave), consider stashing some of the extra money there. You can take 30 year loans out from most 401k for a house purchase. Don't take the loan if you are already maxing! The only exception is if your investment options suck (high loads, etc).