Pay down school loans, mortgage or SAVE?

[thriftymom]

DH is looking for a new job in an area closer to our families. So, we're planning to move there in a few months or so. Currently, we have no CC debt. However, we have massive school loan debt. In addition, we have a mortgage on our condo where we live now. I am wondering what we should be doing with any extra money we have lately. My first thought is pay off the school loans since they are pure debt, (no asset attached). However, the interest is SO LOW that we make more on our ING account than we pay for our school loans! Then, I was wondering if I should be putting more toward our mortgage payment so we will get more back when we sell the condo, plus avoid paying so much interest there. Or, should we be saving up for the down payment? We intend to put what we make on the condo in for our down payment on the house.

[Firefly]

I am not sure what you should do but if I had to choose between those I believe I would pay more into the mortgage

[debtfreeme]

is there a chance you will have to move without the condo selling? If so, where will you live as you being looking for work? What will you use as a down payment if you find a house and the condo is not sold yet?

I would put the money away until plans are solidified a little further. Saving for the move might be a good idea. You can always drop a lump sum payment against the house in a month if you decide to do something different.

[thriftymom]

We were planning on having everything contingent on the sale of the condo. First, DH was planning to tell the new job, (when he finds one) that the move will be in a few months or so contingent on the sale of the condo and purchase of a house. In the event that we did run into trouble, my parents offered to loan us the downpayment which we would pay back after the sale of the condo. But, I hate taking money from anyone, so that would be a last resort. And, we would strongly lean away from buying the house before the sale of the condo because that would also leave us with two mortgage payments. I think it would only happen if an agreement on the condo fell through before closing or something like that. I don't know- I have a certain comfort level with having the money in savings. However, the interest rate is higher on our mortgage than on our savings account. So, it seems like the money would be put to better use there. I'm thinking that once I have a certain amount in savings, I should put the extra toward the mortgage. But, that amount is still in question.

[Ima saver]

I would save the money to help towards the down payment of the house.

[spendless]

You mentioned the school loan as "massive". Not sure how long you have to pay on it but I would consider formulating a pay back "plan" as soon as you can. That is, create a steady payment amount on a regular basis. You can have a 20 to 30 year mortgage....but you probably don't desire that long on a school loan. Just a thought...obviously I don't know all of the details. Good luck on the job change and relocation.

[thriftymom]

Thanks for all of the advice- So, I guess we'll be saving most of our "extra" money for the house. I'll continue putting some extra on the mortgage each month, but nothing major. And, we have been putting extra on the school loans each month, too- especially concentrating on mine since there is a lower balance and a higher interest rate. So, it'll be good to get that one out of the way first. Thanks everyone!!!

[gakline]

I am almost in the same position. With student loans, mortgage and savings. I would suggest not paying down the student loan any faster than necessary as long as you're earning more intrest in your saving account. Student loan interest is deductable.

I would suggest saving the money or splitting it evenly between your mortgage and saving. Yes you will get the money back when you sell, but it's also tied up in the house. If you end up carring two mortgages that extra cash will hold you over. Also it will appear that you have more liquidable assets.

[Tree0164]

I hate having any sort of debt even if is a student loan. How much are you really earnning each year even if your savings accounts are earning a higher percentage???? Maybe the most 1 or 2%.

I would try to get that paid off as soon as possible.

[gakline]

Originally Posted by Tree0164

I hate having any sort of debt even if is a student loan. How much are you really earnning each year even if your savings accounts are earning a higher percentage???? Maybe the most 1 or 2%.

I would try to get that paid off as soon as possible.

Even if you earn 2% (in a savings account) you can write off any interest made from the loan on your taxes. But if you put it into a Roth, you can earn more than that. Last year my Roth earned about 15%.

My student loan interest right now is 3.12% (drops another 1/2% after 36 ontime payments). Assuming that inflation is between 3-4%, it makes me feel a lot better that they are actually losing money on me.

[sweeps]

I agree with debtfreeme's suggestion to save if you're really not sure what to do -- especially until the move is over and everything is settled.

[elcheapo]

I do not know what is best for you and your family but what we did before we became debt free we paided off all our bills because we felt like we were enslaved. So we gained our freedom first and then everything we made belonged to us but this may not be the road you want to take

[thriftymom]

Everyone has really good points and they are exactly the things that I've been struggling with! One day, I think about how low the interest rate is on the school loans and how I am actually making money by keeping it in savings rather than paying off the loan. However, I hate the feeling of that debt hanging over my head and having to make that payment every month. However, since we've acheived "Prepaid Status", we would actually have some time to pay it if things got rough for a few months. But, I was especially thinking that after we move, our mortgage will be higher than it is now and it would be nice to have fewer monthly bills. But, I also know it is important to have a good down payment saved up just in case the timing of selling our condo and buying our house doesn't work out as we have planned. I need to win the lottery- that would definitely solve this question! :

[abowers]

I'm holding off on paying more on my student loans for the same reason-- my interest rate is 2.6% for my undergrad loans, and my car loan is 3.9% -- so in 3 years when I will be paying back grad student loans, those will be the first I will pay off since they will probably be up around 6 or 7% by then.

Good luck!

[thriftymom]

Nice job on those handbags- they look great!

[abowers]

Thanks! :-)

[nixuzer]

Originally Posted by thriftymom

Everyone has really good points and they are exactly the things that I've been struggling with! One day, I think about how low the interest rate is on the school loans and how I am actually making money by keeping it in savings rather than paying off the loan. However, I hate the feeling of that debt hanging over my head and having to make that payment every month. However, since we've acheived "Prepaid Status", we would actually have some time to pay it if things got rough for a few months. But, I was especially thinking that after we move, our mortgage will be higher than it is now and it would be nice to have fewer monthly bills. But, I also know it is important to have a good down payment saved up just in case the timing of selling our condo and buying our house doesn't work out as we have planned. I need to win the lottery- that would definitely solve this question! :

A little late to the game here but a couple of things.

Not sure about your earlier statement about parents giving money as a down payment on another house then paying them back when you sell the condo as well as taking the job and making the house purchasing decision based on the that. You are in effect doubling (if the condo and new house are priced the same) your mortgage liability for what reward? We've moved quite a bit in our 15 year marriage (average once a year for the first 10 years) and always rented at first in a new city until we got the lay of the land then we decided if it was better to keep renting based on my job future or pick the right area to buy the house. This would significantly reduce your risks. Also lets say you buy the house and the employer has some problem and decides not to hire your husband after going through everything your stuck with a nice mortgage but if your family is there you'll probably stick it out (which hopefully has a lot of opportunities for him).

On the issue of order of bills why not wait, sell the condo apply whatever equity you get towards your remaining bills and as other posts recommend just put what extra cash you have towards your savings account. You're about to make two of the biggest life changes (job & move) and you need to make sure you've got a lot of cash for any unforseen things. Then once you get settled in at your new place, paying rent, you can decide how to knock stuff off, we followed the Dave Ramsey Debt Snowball to get out of debt but you'll decide what you want to use. When we did a similar situation we lodged with my parents for a few months and saved big $$ (not sure if that is a doable scenario for you). Paid them a little rent/food/utils to offset our being there plus everyone got even closer, we walked away from that few months with a nice savings and a deeper relationship with my parents.

One note though, make sure that agreement to live with your parents is in writing so there are no bad feelings...how much you'll contribute and how long you'll be there. We determined that anything over what they were paying for food & utilities currently as well as $### of their current mortgage.

UPDATE: Forgot to mention that rent should be much less than what you'd pay for a mortgage in the new city. We never paid more than 75% of what we planned for a mortgage when we moved, sometimes it took a little looking and a little longer commute time but in the end we really won. You're not planning on getting a rental to impress your friends so keep the overhead low.

[khorovetsyelena]

It depends how soon are you planning to buy the house. If you plan to buy it in lets say 6 months from now. The first 3 month pay as much as you can into mortgage then the school loan cause they have interest and it adds up. Then start saving for the down payment. And in case of emmergency that you will have to move sooner that the time you thaught, you can borrrow your parents money. Thats what I would do.