Long Term $$$ Question

[quickstepstar]

I am doing financial plans this week... We are thinking of buying a new house in 2019 (never too early to start saving? ). On our current house we have a home equity loan out to cover 10% of our mortgage. It is at 4.5% I think. (We are in VHCOL area, so this was the cheapest way for us to get a mortgage when we bought 2 years ago).

Now my question: we have some extra money to play with, so our options are either to put it towards the home equity or into a mutual fund for down payment. We will have 20% DP by that point with other funds, but likely some sort of jumbo loan or whatever, so I imagine larger % won't hurt, but on the other hand it would be nice not to have that other loan.

Thoughts?

[Deleted]

Since 2019 is "only" 4 years off, I would put any extra money in cold hard cash, unless you had debt outside the mortgage.

I am a very conservative investor, though!

I wouldn't want to pay down the mortgage since you never KNOW that you can get the cash "back out" if real estate plummets for some weirs reason. I wouldn't put it in the market, since anything 5 years out or less I always have in cash.

It's not sexy, but its safe.

Eta: Once I had the ~20% in cash for new house, I would invest. Maybe even at 15% if you were confident you'd have equity in current home and are just a few years from sale.

[my3bears]

I would be conservative with this as well. However, think about it this way - you get a guaranteed 4.5% rate of return on your money every time you pay more on the home equity loan. Can you get that guaranteed return (after taxes/capital gains) in a mutual fund? Nope!

[Deleted]

We have plans to pay down our mortgage before we buy a new house, hopefully in 3 years (although that depends on where oil prices go!)

It just makes the most sense to us, to pay off as much of our current mortgage as we can, to reduce the mortgage on the next house. My only other real option in the shorter term is a low interest savings account, and we are guaranteed a return on our mortgage paydown (ours is at 3.9%). We want the  guaranteed return on our money and our mortgage is the best bet. But I also view 3 years as a shorter term investment horizon. 

I believe the opposite is typically recommended on here but I have never agreed with the logic, (unless you plan to walk away from your home).

[y4m]

If it's a jumbo loan, could you save enough to buy it down to no longer jumbo? That would be my goal if possible.

[quickstepstar]

Jan 30, 2015 8:43:44 GMT -5 y4m said:

If it's a jumbo loan, could you save enough to buy it down to no longer jumbo? That would be my goal if possible.

I have no idea how much I would have to put down to make it not jumbo? (We haven't looked into this terribly a lot, because it is still 4-yearsish away. I guess it would also depend on how much profit we would make from our current home and if we sell before we buy or vice versa. (Market is pretty slow here, and not much selection so I imagine we will look for a while. We looked for 10 months before buying our current house.).

[Deleted]

Jan 30, 2015 9:05:41 GMT -5 quickstepstar said:

Jan 30, 2015 8:43:44 GMT -5 y4m said:

If it's a jumbo loan, could you save enough to buy it down to no longer jumbo? That would be my goal if possible.

I have no idea how much I would have to put down to make it not jumbo? (We haven't looked into this terribly a lot, because it is still 4-yearsish away. I guess it would also depend on how much profit we would make from our current home and if we sell before we buy or vice versa. (Market is pretty slow here, and not much selection so I imagine we will look for a while. We looked for 10 months before buying our current house.).

www.bankrate.com/finance/mortgages/new-jumbo-loan-limits-state.aspx

Click on your state. Anything below whatever it lists on the next page for your county will not be a jumbo loan.

[Deleted]

H and I just had a version of this discussion last night. We decided that since we plan to move or buy a new house in the next 2-4 years, we'd stockpile cash in our (new!) CapitalOne 360 account. We want the flexibility.

[doobeedoo]

Another vote for saving the extra here. But because I tend to hedge on just about every financial decision, I'd probably start throwing extra at the second mortgage, too. If you had $1000 to play with, I'd go with $750-$800 to savings and the rest to paying down the other mortgage.

[quickstepstar]

Jan 30, 2015 9:14:59 GMT -5 @mrsspunky said:

Jan 30, 2015 9:05:41 GMT -5 quickstepstar said:

I have no idea how much I would have to put down to make it not jumbo? (We haven't looked into this terribly a lot, because it is still 4-yearsish away. I guess it would also depend on how much profit we would make from our current home and if we sell before we buy or vice versa. (Market is pretty slow here, and not much selection so I imagine we will look for a while. We looked for 10 months before buying our current house.).

www.bankrate.com/finance/mortgages/new-jumbo-loan-limits-state.aspx

Click on your state. Anything below whatever it lists on the next page for your county will not be a jumbo loan.

Ours would be above FHA and above conforming, so jumbo?