OT: What would you do? Pay off small remaining morgage or upgrade to a bigger house?
Figured I would ask this question before OT seadon ends.
We have 14 months left on an adequately sized home for my family of 6. There is a house for sale in the nicer part of our much larger neighborhood that is 1000 square feet bigger but also $100,000 more than the price of our current home. The kids would still go to the same school, which we really like.
So what would you do? Upgrade to the bigger house or pay off the morgage and enjoy the extra money of having no house payments?
I'd love to have that opportunity. Depends on your income, long-term plans, ages of the kids, etc.
If I were in your position, with five years still to go with my oldest kid and a house that is adequate but really needs another bedroom or two, I'd bump up... but I'm not in your position. Also, you might have really good plans for that extra money. Keep in mind that you will still own your house if you decide later you really want to upgrade.
One small note: Moving is a terrible experience, and while that shouldn't factor in to this kind of decision, it's still terrible.
When I was in my first house almost 20 years ago, we were talking to a contractor about refacing our kitchen cabinets. The first thing he said when we told him we were moving is "moving sucks".
Forget whether the process of moving is terrible. The OP says his house is adequate for his family of 6. He's practically paid it off. WHY TAKE ON MORE DEBT? Keep your balance sheet as clean as you can. You've got some significant expenses ahead...like your kids education.
Not to mention at some point he will be an "empty nester." That bigger house is going to seem very empty in the long term when all the kids move out and those house payments will likely still be there. I'm with you...debt free all the way.
This right here. Obviously, there's a lot of information we don't know in this particular circumstance, but having a paid-off house is a huge asset and frees up a lot of money.
Again, without knowing more about the situation, this is what I would suggest: stay in the current house, pay it off, then start throwing your house payments into college savings accounts for your kids (either 529 or IRA...do your research or talk to a cfp) for a few years. After you've set your kids up well for college, then look to upgrade your house.
Again, lots of variables we don't know, but that's my answer based on the little info given.
Humblebrag season already? It's still only just barely August. Where are you writing this post? From your Swiss mountain summer home? Need to know where you can watch the opener in Bern?
I dunno. If adequately sized currently I'd stay put. Two reasons:
A) in terms of relative value between the two homes it's almost always better to be in one of the smaller houses in a big house neighborhood and
ii) those kids are gonna leave at some point and maybe the smaller home makes more sense once the nest has emptied.
Otoh, if it's all asses to elbows in there, and it's affordable, get everyone some extra space.
Cheers.
I think it depends on how old your children are. If you are looking to upgrade because you could use the space and all your kids are really young, then it might be worth it. 100k over 30yr (assuming you roll most of the proceeds of selling your current home into the new one) isn't tremendously bad.
On the other hand, if you are starting to shed kids to college, having no housing payment and money available for tuition is a really nice situation to be in.
One of the reasons I was thinking of upgrading was because our kids are younger. 10, 8, 6, and 3. Sleeping arrangements would still be the same but the rooms would be bigger.
August 3rd, 2019 at 10:51 PM ^
These types of purchases are sometimes made more with the heart than the mind. If you can afford it, I doubt you'll regret the upgrade. Sure you can save your money for other, perhaps more sensible things. But if you're already saving for the kid's education, saving for retirement, and have stable employment then go for it. The memories you will create in your home have much more value than the money.
August 4th, 2019 at 12:19 PM ^
I go back and forth on this one. An extra $100,000 in mortgage (depending on rate) is around $500 a month more than your current payment. The new house is likely taxed higher and will have more insurance costs so figure, in total, an extra $700 a month give or take. If you can afford it and really want it, that doesn't seem terrible.
On the other hand, if you can wait a year or two, I have a feeling the nicer house will be cheaper than it is now and having the extra ~ $15-20k in the bank will make you more opportunistic when the market corrects down.
You bring up an interesting point by mentioning 30yrs.
I would define affordable here as "we're looking at taking this extra 100k on with a 15 (or even better, ten) year mortgage".
I absolutely wouldn't take that on if the only way I could do it was through a 30 year - the amount of interest you'd pay over the life of that mortgage would be more than enough to make me stay put.
Cheers.
I would pay off the house and bank the extra money. Nothing better than not having to worry about money.
Pay off the mortgage and be debt free.
If your house is adequate, keep it and pay it off.
If your house is adequate--or if it can readily be made adequate. . . Obviously, your income and prospects all make a huge difference here. But from the personal perspective of someone with a kid getting through HS and a house almost paid off, I can't tell you how many times my wife and I have thanked our stars that we didn't yield to temptation during a couple of unsatisfied patches and take on something bigger. It has had and will continue to have considerable impact on our financial comfort in a very uncertain world.
Also bear in mind that a lot of people think a recession likely hits sooner or later. . . which could be a reason to act quickly or stand pat.
I would bump up to the bigger house. The extra $100k is an investment and the key point is that it is in the nicer part of the neighborhood so it should hold its value better over the medium-to-long run.
Agree with this.
100k at todays rates might cost an additional $400 ish. I'd do it.
You'll get it back when you downsize as you become empty nesters and enjoy the space along the way.
But what is it realtors say--better to be selling the more modest house in an attractive neighborhood.
Whether you plan to retire there or give it up when the kids are gone. . . additional factors.
No house is an investment until you own more than 1
I logged in to make the same point. Your home is not an investment...it is your home. I don't know who started the myth that your house is an investment...but it is just that...a myth. It doesn't seem like we learned anything from the 2008 crash.
If you spend 30 years paying off a house...there's a chance that any perceived profit that you get from selling it has been wiped out by the interest you paid over 30 years.
1. Pay off the mortgage.
2. Aggressively save the money you would be spending on new house for a future downpayment
3. Buy new house with said savings and keep old one as rental property
4. Use rent money from old house to pay off mortgage on new house.
5. When both houses are paid off, keep collecting rent money
6. When it's time to downsize, sell the lower rent collecting house to buy new home with cash
7. Keep collecting rent on other house.
This is the proper solution. Although even with 14 months left this is probably a viable plan.
It should be noted that any rent brought in on a rental property is treated as income and is taxed accordingly. Not that I'm discouraging that plan, but something to keep in mind.
True. But, only rental income in excess of costs.
OP COULD take an equity line of credit to use as a downpayment on Home #2 and then rent Home #1 to just cover that mortgage/equity loan costs for the next year or so.
Just incorporate into a LLC, acquire new properties in the LLC, all sorts oft tax deductions, booyah, God bless America.
I would stay put and pay it off. The tail end of the mortgage is when you see the most equity gains from your mortgage payment. That said, if there were major upgrades (e.g., kitchen, bathrooms) I wanted to do to the house and the more expensive house had those items it would probably make sense to move.
I think the question about age of kids is pertinent. If they are all young, then you might outgrow the house soon. If they are 8+ then they might not be around as much as teenagers, so the size might be as much of an issue.
Honestly, though, I would have to have a pretty good reason to upgrade. If the house is adequate, I'd try to stick it out, pay off the mortgage, and start filling up your retirement accounts. I think in 10 years, when you have several hundred thousand more saved you won't even question the decision to stay put rather than upgrade for almost no reason.
If I was in your situation, what I wanted wouldn't make a difference. We would end up doing whatever the wife wanted.
I planned my entire financial future around mortgage payoff when kids go to college. Now that it’s on the verge of happening, I’m pretty happy.
Debt is a curse.
But greed is good.
-Gordon Gekko
Completely depends on the debtor: average consumer--trouble, start up--building for growth, all good
Corollary: credit is the devil.
August 3rd, 2019 at 11:17 PM ^
Totally agree.
Ed: The rich rules over the poor, and the borrower becomes the lender's slave.
How much would your next mortgage be after you sell your current house? Could you swing a 15 yr mortgage for around what you are paying now?
We already had a 15 year mortgage and the difference (if market value holds true for each house) is less. By how much less, I am not sure. Would be something to look onto just to see.
Pay off your house and sell your kids. It is a win-win!
Made me laugh. Plus 1 and thanks.
If your current house is in good condition where you can sell without spending more than 5 percent and you have money for down payment on the new house, then sell the house. The new house will more than make up for the agony. If not, don't. Not worth it. It is worth upgrading your current house and save for down payment for New house down the road.
Think about how the utility and maintenance costs (HVAC age, roof age, amount of trees, landscaping) compare between the two. As I alluded to in an earlier OT today about kids, don't spread yourself too thin.
Leave room to afford nice travel and experiences outside the home for your family.
Own the house before it owns you.
I'd pay it off and stay where you are. Having options in life is a wonderful thing.
Pay it off and stay put. Extra space means more stuff to fill it and moves always end up costing more than you expect in the long run. Invest the equivalent of your house payment in some index funds and you’ll be fine. You’d be amazed what you feel like you can do with no debt to pay.
Kind of depends on your income and how much you need that 100k. Debt sucks, but 100k mortgaged is not really a big deal. Just don’t forget about your closing costs, moving costs, etc. they’re always more than you expected
I think your answer is kind of in your question. Your current house is adequately sized for your family. To hell with the new debt.
Being debt free provides a wonderful sense of security...pay off your house.
There’s no right/wrong decision here, and it’s an enviable position to be in. I know what I would do though. My recommendation with today’s interest is neither of the two. Cash out refinance a portion of the equity and put that money to work for you. You’ll easily out-gain the interest rate on your mortgage. Or if you still have payments on any depreciating assets (i.e. a car) pay those off and you still might have the same impact to your monthly cash flow. Really all depends on your specific scenario and long-term goals though.
Upgrade. Especially if it’s an area where houses appreciate. Just keep the increased maintenance costs in mind.
Wow. Congrats on only 14 months left! Your family is young and you almost have the house paid for. That’s incredible. If it were me I would pay it off. There is noway I am going to a nicer home with the way my youngsters destroy everything. Anytime I get something new it just adds more stress to my life. Pay it off, make some renovations, if needed.
If you are really looking for more payments then buy a vacation home up north, assuming your living in MI.