Would you pay off mortgage?

[JuniorTT]

Yes, new houses cost money, and many people will not enter into contracts with conditions. Fewer conditions also improves negotiating power.


agree, more than one option exists

The issue here is OP would need to move twice in a short amount of time, and might not be able to enter contract to purchase until the contract to sell closes.




We both agree OP should not use all the cash to pay down current house.
I am suggesting keep 25% of next house price available as down payment- maintain liquidity and maintain flexibility with when OP can close on new house- gets OP the best price point and negotiating power.

That is probably between 50k-125k depending on price range of house purchase (200k-500k).

Your suggestion was 6 months expenses, which (just guessing) is about 15k-20k (much less than my suggestion).


I agree with your earlier suggestions OP is financially conservative. That is OK, OP just needs to determine what makes them feel better-

no mortgage or interest and higher cash flow in current house
or
optimum purchase situation on the new house with lower cash flow until either the house is paid off, or the move happens.

I would also suggest to OP that paying down a mortgage and paying off a mortgage are two very different things.

Paying down mortgage (as in taking 50-75k and paying down mortgage, but still having a mortgage balance) does not
a) increase cash flow
b) increase net worth
c) reduce your mortgage payment

Over time all 3 of those things are true (the longer the time, the more favorable the outcome), but short term the impact of those variables will be very similar to the previous month or previous year.

Paying off mortgage will
a) increase cash flow
b) eliminate mortgage payment

Paying off mortgage will not
a) increase net worth
OP's net worth will only change if mortgage payoff creates more cash flow, and some of that cash flow is put into assets which appreciate in value.





Which on $100k is a 4%(tax free) return, which is better than the 1.1% (taxable) he's currently earning.

Very important point about the difference between paying down a mortgage and paying it off. We've paid it down in the past (~$20k extra in our mid 20s) and later regretted it. Dollars and cents aside, it didn't end up feeling that good to have reduced our savings by $20k and then still have the same mortgage payment every month.

I'm now trying to picture how it would feel to take $175k+ from savings to stop the mortgage payments. I have a feeling I'd feel broke.

[JuniorTT]

I've only bought one house in my life and never sold one so there is one thing that I'm not following here. I agree that you shouldn't buy a house before selling your existing house but don't you still need the down payment money liquid? You can't depend on the proceeds from selling house #1 to buy house #2 because you need to settle on house #2 before settling on the sale of house #1. If you settle on the sale before settling on the purchase, you'd have no place to live in the interim.

Many people make an offer on a house with a contingency that their current house must sell before they can settle on the new one. One person's sale falling through could potentially screw many others down the chain.

[JuniorTT]

It's tempting when you have a lot of cash lying around to feel like you have to "do something" with it. Paying off your house is a great goal, but you're not quite there yet if doing so would leave you cash poor.

Forget about trying to get a few extra percent return by investing it, if you have major plans like buying a house in the next few years. Sure, you might get lucky and have 200K when you're ready to move- but what if it turned into less than $150K? If you're already maxing out your retirement plans, you have plenty of market exposure.

Why not pay off the student loans and save the cash towards your EF and house payoff? When you go for a mortgage on your next house, you'll have one less payment counting against you.

Oh, and owning two homes when you really only want one, is a miserable situation, a financial and emotional burden. So don't use the cash to shop for a new house until you're present one sold, especially these days.

If you're already in a house and area you like, finding an upgrade that worth it can take months of looking. Why not start now? It will help you decide how you want to spend that money.

I agree with most of what you've said. One comment about investing though is that I'm looking for something low risk with this money. As you've said, we have plenty of market exposure already. I'm starting to think about doing municipal bonds or municipal bond funds but I don't know enough about them...yet

What does everyone think about investing in munis instead of paying off the mortgage? From the very little I've read so far it sounds like I have the right amount of cash ($100k+), but I don't understand the liquidity of munis. I've also heard they tend to trigger the AMT...gulp. I wish had time to really dig into it. Maybe once the baby's born I'll have more time - haha!!

[JuniorTT]

Wanted to share what we decided to do with the extra cash...

Just wrote a check to the mortgage company for ~$135k. That still leaves $50k in savings and a balance of $38k on the mortgage. Amortization table is suddenly looking niiiice. But we still have the mortgage for 2 more yrs unless we pay extra again.

We could pay it off and have a 5 month emergency fund but I'm seeing some big expenses coming in the next 6 months so we'll play it safe at least for now.

Thanks again for all the comments.

[disneysteve]

Wanted to share what we decided to do with the extra cash...

Just wrote a check to the mortgage company for ~$135k.

That's great. Congrats on that! I'm sure it feels good to look at your new much lower mortgage balance.