mortgage vs savings
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| Fri, 01-22-2010 - 11:32am |
We have decided to move in 12-18 months. We are debt free except for the house. We have been rounding up on our mortgage payment every month and paying an additional $645.47. We are wanting to downsize and get into a better school district. I am hoping to get a house under $200,000. Our current home is worth about $240,000 and we owe about $137,000. Currently we have a 15 yr mortgage at 5.25%.
We are paying more of our regular mortgage payment to principle now than interest. $748.13 vs $606.40. I was thinking about adding an extra $1000 with our tax check to next months payment. Now I am unsure if I should put it in savings. We have a 6 month emergency fund in place. Also the extra monthly payments? Should I continue adding those up? Ing is only paying 1.25% now, so I am unsure.
What do all you wise people think?
Thanks,
Donna

We have been in this exact situation before as well. While basic math tells you it is silly to hoard money at 1.2% interest while paying over 5%, we stopped paying extra to principle when we knew we were moving because, well, moving costs money. You never know if you need will need cash for new flooring, paint, furniture, repairs, inspections, etc in the new home until you get there, usually.
Also, the 6 months savings you have really shouldn't be used for that stuff... in our house, that is the emergency fund in case someone is unemployed, or the fund for a new car, etc. It already has a plan, so keep some money for moving expenses. Once I saved about $10,000 for moving, though, I might put the money into the mortgage again. I picked 10K because that is about what we spent the first couple of years in our new home on landscaping, remodeling, decorating, etc.
FWIW, my husband would tell you the exact opposite of the above, but he would live with 20 year old carpet and builders white walls, using cardboard boxes as tables if I let him ;-)