SL Pay Off or House Down Payment?

[winnied]

This is something I've been thinking about for awhile. H and I received significant pay increases this year. With that money, we are definitely paying off our car a couple years early. After that, I'm not sure if I want to pay off my student loans or save for a down payment on a home. We live in NOVA (HCOL) and I have 45k in SL debt left at an interest rate of about 3.5%. We have no other debts. H and I do participate in our 401(k) plans up to the employer match. I actually contribute a bit more since it's Roth. We also both have Roth IRAs (don't max them out every year yet.) 

We don't have kids yet, but that's something we're going to try for about this time next year. 

I think I could pay off my SLs by the end of next year. That appeals to me most because then I'll feel as though I've achieved true financial freedom, by not being bound to any debts. It's a big mental thing for me. Still, once we have a kid (2-3 years from now) it will be really difficult to contribute much to a housing fund on top of daycare. 

What say you, MM? I'm the kind of person that needs to talk things out but this isn't something I'm comfortable sharing with folks I know, beyond H, of course. H sees the pros/cons of both sides and isn't sure either. 

[delawarejen]

I would want the student loans gone and be maxing out the Roth IRA's, plus save up a downpayment, before taking on a house, but most people on this board will probably disagree with me. It's hard to advise, not knowing how your income compares with your SL balance.

Do you have an emergency fund? I'd want a healthy one of those as well before buying.

[whitemerlot]

I would prioritize retirement over paying off student loans with a low interest rate.

[winnied]

Oh yes! Good to note: we have a healthy efund.

[winnied]

We're on track to have 1x income in retirement by 35, which is what I'm comfortable with considering the salary increases that have increased quite a bit w/o our lifestyle increasing much. We're contributing 12% to retirement right now.

Blerg, I see the trend in prioritizing retirement and I hear you all. It just deflates me because there's not even a sliver of "instant" gratification for that. Still, this is why I come here! It's so helpful to get more brains thinking this through.

[tacosforlife]

Down payment, no question.

[curbsideprophet]

I would max out Roth then put the money towards a DP. It seems unlikely that your mortgage rate would be less than your SL interest.

[sfy]

I would max retirement before either one. The MM thing to do is to save for the down payment; however, I think there is something to be said about feeling free financially. I think it's like how Suze Orman would sometimes tell people to do what makes them feel most powerful with their money because that feeling helps to attract more money. So, I don't think it would be a huge mistake to pay off the SLs if that's what you feel like you need to do. Still, I'd urge you to consider whether or not that feeling will be important to you once you guys have a child if you're not able to purchase a home for a few years. If you don't think it will matter, then pay off the loans, but if you think it will, maybe save for the DP instead or even split the difference.

[AAM2012]

I would split between retirement and down payment.

[SJ]

I would focus on (in this order):

1) Retirement
2) House DP
3) Student Loans

[sporky]

My first priority would be the house down payment. Student loans can wait, especially with a low interest rate. I think you look ok on the retirement side too. But I tend to prioritize owning a home (with a paid-off mortgage) as part of retirement as well.

[tacosforlife]

Here's a big reason I generally push SLs below other financial goals: death.

If you save for a DP and then die, your H still has the money you saved and will not have to pay your SLs (unless he's a cosginer). If you pay the SLs off and then die, your H does not have the benefit of all that money you threw at your SLs, and only the bank benefits.

Obviously, there are exceptions, but especially with such a low interest rate, I wouldn't accelerate them.

[WinterWine]

1. Retirement-I'd max Roth IRAs and do 15% in 401k
2. Down payment
3. Student loan

tacosforlife That's a good point I hadn't thought about.

[hbomdiggity]

I prioritized the dp.

That said, my SL balance was much higher and I've accepted that I will be making payments for many many years to come.

It would be tempting to pay SL first if it only delayed a home purchase by a year or two. But otherwise I'm not going to let them get in the way of living my life.

[winnied]

Thanks, guys - you're awesome. tacosforlife, that's an excellent point that I had forgotten. 

[mrshandy]

How important is owning a home to you?

I have a similar interest rate (but way more loans) and paying them off is not even on my radar.

We were able to save for a DP with one kid pretty well, but saving with two kids was not going to happen. So the DP became our top priority and we saved like crazy for 2-3 years until we had enough. Having our own space to make our own was something that we really wanted. I wanted to lay down roots and be established in a neighborhood. I did not feel like waiting 5+ years to pay off my SLs in order to make that happen or to have another kid.

[winnied]

Aug 7, 2015 13:41:39 GMT -5 mrshandy said:

How important is owning a home to you?

I have a similar interest rate (but way more loans) and paying them off is not even on my radar.

We were able to save for a DP with one kid pretty well, but saving with two kids was not going to happen. So the DP became our top priority and we saved like crazy for 2-3 years until we had enough. Having our own space to make our own was something that we really wanted. I wanted to lay down roots and be established in a neighborhood. I did not feel like waiting 5+ years to pay off my SLs in order to make that happen or to have another kid.

I think it's more important to H than me. We're from the midwest originally and just have a hard time not being home-owners with the image of "family" we have in our minds. Your perspective is very helpful - thank you! 

[BirdGirl]

Aug 7, 2015 9:12:22 GMT -5 tacosforlife said:

Down payment, no question.

Yep! Knowing the NOVA market, I completely agree with this.