bonus money: use for student loan or for house purchase?

[Slug]

Option 2. The cost of capital is ridiculously cheap for you. If I could borrow $43,000 at a 2.25% fixed rate for 15 years right now, I would pee my pants. Park that cash in something relatively safe and pay off that student debt in the slowest possible way to allow for continued saving towards home purchase.

PS If any of the risk-averse folks out there would like to give me that loan on those terms, just message me!

[ragamoffyn]

Thanks again for the advice, all. Now reconsidering option 2...

[dbstylee]

student loan...wait off on a home purchase, mark my words, we have not yet found the bottom....2012 is the year to get back into real estate

[jpg7n16]

student loan...wait off on a home purchase, mark my words, we have not yet found the bottom....2012 is the year to get back into real estate

The bottom in the US, or in Norway? Besides, see OPs timeline for home purchase...

House: I need about $50,000 USD for a down payment. With savings and investments, I can hopefully have that amount in 2-3 years. (I live in Norway, by the way.)

[nwins002]

I would definitely work to bring down the debt before buying a house. I'm finally debt free, but nowhere near to being a homeowner. In some ways that's good, though, because I can't (yet) afford to pay for repairs and upkeep--I'll leave that up to my landlord.

[dczech09]

A couple things to consider...

If paying rent is "throwing money away", then paying interest is also throwing money away. Could you get a better rate of return on your money by investing? It is likely; however likely is not guaranteed.

Your investment horizon for saving up for your house down payment is likely less than 5 years. That being the case, avoid stocks and shoot for a preservation strategy with your money. I would go for bonds- corporate bonds. Avoid Treasuries and avoid GICs.

A GIC is basically a canadian version of a CD; lousy rate of return that is generally on par with T-bills.

Based on this, your money would be earning a relatively low rate of return. Also, with interest rates expected to rise in the next few years, your bonds will lose substantial value. Likely, when you want to sell the bonds in order to purchase the house, you will realize a very low (even negative) rate of return.

Strategically speaking, and based on my own risk aversion, I would recommend paying off the student loans. Whether you pay interst on the loans or a mortgage, you are essentially throwing away money like a rent payment. So the name of the game should be reduce your overall interest outflow. With that in mind, either option 1 or option 3 are good bets.

Go for option 1 if you can delay the gratification of buying the house. Go for option 3 if you want to stay on par. Personally I would go with option 1 just because I myself am going for the 100% down method; I've realized that it makes most sense for me based on my career and my location. Good luck!

[DebbieL]

A couple things to consider...

If paying rent is "throwing money away", then paying interest is also throwing money away. Could you get a better rate of return on your money by investing? It is likely; however likely is not guaranteed.

Your investment horizon for saving up for your house down payment is likely less than 5 years. That being the case, avoid stocks and shoot for a preservation strategy with your money. I would go for bonds- corporate bonds. Avoid Treasuries and avoid GICs.

A GIC is basically a canadian version of a CD; lousy rate of return that is generally on par with T-bills.

Based on this, your money would be earning a relatively low rate of return. Also, with interest rates expected to rise in the next few years, your bonds will lose substantial value. Likely, when you want to sell the bonds in order to purchase the house, you will realize a very low (even negative) rate of return.

Strategically speaking, and based on my own risk aversion, I would recommend paying off the student loans. Whether you pay interst on the loans or a mortgage, you are essentially throwing away money like a rent payment. So the name of the game should be reduce your overall interest outflow. With that in mind, either option 1 or option 3 are good bets.

Go for option 1 if you can delay the gratification of buying the house. Go for option 3 if you want to stay on par. Personally I would go with option 1 just because I myself am going for the 100% down method; I've realized that it makes most sense for me based on my career and my location. Good luck!

There is plenty of risk (short-term) to bonds losing value. Interest rates are bound to go up (they can't very well go down. For someone looking for an income stream from the interest payments and planning to hold them long-term, they may be okay, but not in this short time frame.

[StepRightUp]

I've said it before and I'll say it again: unless ALL things are equal (and they rarely are), paying rent is not "throwing money away." So if that philosophy is leading you to buy a house, that's something I think deserves another look.

The point of money is to enhance your net quality of life. From putting food on the table to a roof over your head to a new video game, you spend money because you feel you are better off after having done so.

The reason I say "net" is because while you are getting a house for your money, your life will drastically change. You will now have a mortgage, greater responsibility, possible stress, risk (inherent in any debt), increased expenses, time lost attending to all of the above, etc.

In other words, the price of the home is not merely monetary.

So while you may be "paying yourself" as the saying goes by buying a house, you must decide if your net quality of life will improve. Until you can answer confidently that it will, then one should probably keep "throwing money away" and rent.

Having said that, at such a low interest rate, I agree with those above who advise investing it rather than paying off the debt.

[canada94]

Put the money into the property, make sure you buy below market value, after 2 years you can remortgage the house, the money you make can then pay off the student loan.

Hope this helps