Extra monthly cash: pay down mortgage or save for downpayment (not the same thing!)

[Anonymous]

Assuming your parents will provide you with the down payment on the next house, the next big cost facing you is going to be closing costs when you sell your current place. Some folks say you want 6-7% of the sales prices for closing costs, which is about 25k. You already have that much. But, my sense is that in this market, you probably need 10% to close. (Buyers are demanding a lot by way of repairs and improvements.) In that case, you'd want about 35k. At 500 a month, you would be at that amount (easily) in a year. I don't think it makes much of a difference if that amount is in savings or in equity. Over the course of a year you're not shaving that much off the principal so interest charges aren't going to be remarkably different. And you won't make much in the bank either. In you shoes, I'd just save it and have it on hand when you need to bring cash to the table at the sale. I just prefer to keep cash in my hands.

However, under this scenario, you could be at zero savings when you close. I mean - nada. Also, you'd absolutely have to sell at what you owe. No room to negotiate. If there's any kind of emergency or unanticipated costs from the sale, you are SOL. You may want to factor this into your thinking and perhaps build another year of savings into your exit plan. Probably best to think 2-3 years out rather than 1-2.