• filter:

Mortgage or Savings Account

  • Page :
  • 1
  • Text Only
  • Search this Topic »
Voting History
rated:
Hello,  I currently own a house and plan to sell it and buy a new house in about one year. In order to get a little larger down payment on a new house, would it make sense to put any extra income each month into my current mortgage (~3.3% apy) or into a savings account (1.4% apy)?  The idea behind adding it to the mortgage is to pay it down and have more equity when selling. I currently have about $20k in savings and on a tight budget I think I can save around $1300/month. My goal behind saving for a bigger down payment instead of buying today is just to take a smaller loan which would come with a lower monthly payment. A $300k home with a $50-60k down payment should be more affordable monthly than if I have a $40k down payment. Does all this sound correct?

Member Summary
Staff Summary
Thanks for visiting FatWallet.com. Join for free to remove this ad.

rated:
Saving $1300/month for a year will mean about $100 in extra interest in your savings account, or save about $250 in interest on your mortgage.  So it's pretty small peanuts either way. 

So the real question is, do you plan on selling your house then buying a new one, or buying a new one then selling the old one?  If you are going to buy first, the extra equity in the old home isnt going to help your new down payment any - so you might want to hang on to the cash even though the loan is costing you more.  But if you plan to sell your house before finding a new one, your net from the sale can go towards your new down payment (and every extra dollar paid towards the mortgage increases your net upon sale by at least $1), so you might as well pay down your current mortgage and save the 3.3% interest cost.

 

rated:
If house prices are climbing in your area, they could climb more in a year than you are able to save. The $300K home you want now might cost $330K next year. If your current home is worth less, say $200K, even if it climbs the same 10%, that's $10K less.

If you pay extra into your mortgage and home values crater, all that extra you've put towards "equity" could get wiped out. When money is tight, having money in the bank is always better than money on paper (equity). If you lost your income, you can live a long time using money in the bank, but you wouldn't be able to get any of it out of your home unless you sell it, because it's hard to get any credit/HEL/HELOC without income.

rated:
Given your timeframe, so long as the extra payments are 100% extra principal It's pretty much a wash. If you put 1300 into the mortgage, you'll save a little bit more... but more cents than dollars. If you put the cash into the bank, you will see it separately.

Question back to you: which do you think will get you more excited and more likely to pinch more pennies and save? seeing a savings account grow faster, or seeing a mortgage drop faster?

I've never sold a house. When you are selling a house, who, if anybody, knows your Mortgage balance? Last thing you want to have happen is for buyers to offer less on the home you sell because your mortgage balance is lower.

rated:
micha8s said:   I've never sold a house. When you are selling a house, who, if anybody, knows your Mortgage balance? Last thing you want to have happen is for buyers to offer less on the home you sell because your mortgage balance is lower.The value of the property doesn't depend on the owner's mortgage balance. Buyers can offer whatever amount they want for whatever reason they want -- sellers decide whether to accept it.

rated:
Right -- the value of the property is set by the agreement of the buyer and the seller.  Obviously a buyer wants to pay as little as possible, and the seller wants to get as much as possible.  My concern is that if the mortgage balance is known by the buyer, that might affect the offer chosen -- obviously an offer that does not result in paying the mortgage off is problematic.

rated:
I know that the lien and the original amount is public record, but I don't know if it gets updated as the mortgage is paid off. I suspect it's not.

I would think that if a buyer came in with a low-ball offer, it would not be because the seller has a low or zero mortgage balance, but because the asking price is too high, or the house has been sitting on the market for a while (which also means the asking price is too high).

rated:
micha8s said:   Right -- the value of the property is set by the agreement of the buyer and the seller.  Obviously a buyer wants to pay as little as possible, and the seller wants to get as much as possible.  My concern is that if the mortgage balance is known by the buyer, that might affect the offer chosen -- obviously an offer that does not result in paying the mortgage off is problematic.
  They wont know the mortgage payoff amount unless you tell them.  The mortgage balance is only a factor if you want to make it a factor.

rated:
scripta said:   The value of the property doesn't depend on the owner's mortgage balance. Buyers can offer whatever amount they want for whatever reason they want -- sellers decide whether to accept it.

I know going in to an offer (absent other information) that a seller with a mortgage balance > my offer is far more likely to wait and see what else comes in than take my offer.

Like it or not people do attach emotion to a home purchases and sales.

rated:
elektronic said:   
scripta said:   The value of the property doesn't depend on the owner's mortgage balance. Buyers can offer whatever amount they want for whatever reason they want -- sellers decide whether to accept it.

I know going in to an offer (absent other information) that a seller with a mortgage balance > my offer is far more likely to wait and see what else comes in than take my offer.

Like it or not people do attach emotion to a home purchases and sales.

 If anything, a buyer having that knowledge generally helps the seller - the mortgage balance creates a form of bidding competition, or the perception of a minimum bid. 

  • Quick Reply:  Have something quick to contribute? Just reply below and you're done! hide Quick Reply
     
    Click here for full-featured reply.


Disclaimer: By providing links to other sites, FatWallet.com does not guarantee, approve or endorse the information or products available at these sites, nor does a link indicate any association with or endorsement by the linked site to FatWallet.com.

Thanks for visiting FatWallet.com. Join for free to remove this ad.

While FatWallet makes every effort to post correct information, offers are subject to change without notice.
Some exclusions may apply based upon merchant policies.
© 1999-2017