Another house payment question

[witchkizzle]

Currently our principal and interest is $485 a month.

We have been paying $1,000 instead. We also save monthly for taxes and insurance payments once a year since we put 20% down and were allowed to escrow our own TI. (we just moved to this house in April, so we are new to this stuff)

We want to move in about 5-10 years and take out the equity from this home and put a very large downpayment on a bigger house. Our interest rate is 4.125% on a 30 year mortgage.

I was always a firm believer in paying off the house as much as possible and we might even bump our payment up to $1,500. Is it a better idea, though, to take that extra $515 or $1,015 dollars a month and sock it away for a larger downpayment in an indexed mutual fund for 5-10 years?

The question comes down to:

Does it make sense to pay extra on a house we are not going to realistically pay off completely before we move?

We have no other debt and currently put between 15-16% of our gross income into different retirement accounts not counting employer matches so our contributions come out to 22,500 to 23,000 yearly.

The only other pressing need is my wife to have a new (used) car soon but we are currently saving $2,000 a month on average towards that goal so we can pay cash.

What would you guys do?

[bjl584]

Why did you opt for a 30 year mortgage. You could have easily afforded a 15 or even 10 year note. You're going to build equity quickly either way since you pay so much extra, but I probably would've opted for a shorter term up front. You would've gotten a better interest rate most likely.

[witchkizzle]

Why did you opt for a 30 year mortgage. You could have easily afforded a 15 or even 10 year note. You're going to build equity quickly either way since you pay so much extra, but I probably would've opted for a shorter term up front. You would've gotten a better interest rate most likely.

You are right and it was a difference of about .25% on the mortgage rates in our situation, but my wife will be leaving her job when we have a kid and we are expecting that to happen in about a year's time.

At the time of the mortgage our income wasn't where it is now either. Over the past three weeks I got a 27% raise and my wife got an 18% raise. Our annual income ends up being over $25,000 higher now than it was just three weeks ago.

Needless to say, we have been fighting the urge to spend more and have both increased retirement contributions and put extra towards house payoff and car savings.

We are going to get $300 each in July to spend though. It was our way of rewarding ourselves. Really we had 3,000 in the budget this month to go towards her car, but we also are wanting to get our landscaping done, so we moved 1,000 out of car savings and into landscaping savings.

[Petunia 100]

I think you should be saving cash and possibly investing conservatively (more bonds than stocks) for the downpayment of your next house. What if it takes a while for your present house to sell? You will be stuck, waiting. With cash and investments to fall back on, you have more options.

[jpg7n16]

I was always a firm believer in paying off the house as much as possible and we might even bump our payment up to $1,500. Is it a better idea, though, to take that extra $515 or $1,015 dollars a month and sock it away for a larger downpayment in an indexed mutual fund for 5-10 years?

So what was it that made you change your thinking?

What would you guys do?

I'm personally in a much different camp than you. I think over a long timeframe (25-30+ years) stocks will average 8%+. So I personally wouldn't make a sizable downpayment, even if I could. Why would I want to take a bunch of money that could have been making 8% and make it save me 4% on expenses on a new home? I'd rather have those funds invested.

So what would I do? I would be stocking the excess away in some sort of a retirement account. I wouldn't be focusing on how to make a large downpayment at all.