In our case, we found the “perfect house” in our new location, but our old home hadn’t sold yet. The sellers of the home we wanted refused to take our offer, which of course we made contingent upon our old home’s sale. However, we had a low enough debt-to-income ratio, that we actually qualified for two mortgages - clearly not something that we wanted to sustain for long - but we took the risk and got the house we wanted. Ten days later, our old home sold, and we’re happy with the results.

… all that to say that if we didn’t have the extra liquidity during the transition, we might not have been able to confidently cover two mortgages, plus the uncertainty around closing costs, financing, and other short-term home improvements.

My recommendation in a nutshell: hold onto your cash as long as you can at this point, until you size up all the options for how to spend (or save) it - don’t lock yourself into a course of action too early.

Of course itemizing does open up the possibility to deduct more things, but usually the mortgage interest is the primary factor. I don’t think it is accurate to suggest mortgage interest has a dollar for dollar tax benefit.

I know plenty of people who own houses and don’t even itemize- because they have low/reasonable mortgage payments.

I think there are many good arguments for carrying/incurring expenses, but tax deductibility is rarely one. Especially when it results in spending extra for the “savings”…

Not many people have a federal rate of 20%+.. I just consulted current tax tables and for me to have a 20% overall Federal tax I would have to make about $150,000. For any of my money to be taxed at over 15%- ~$80,000.. For any to be taxed at 33% ( a common savings rate people like to toss around when arguing tax deductions) I would have to make over $208,000.

Guaranteed 6% return on your money. Also, you build the precedent in your marriage for paying off your house early.

If you want more flexibility, build up your emergency fund bigger. Why do you need to move fast? Be patient, there’s always more houses.

It sounds like there may not be an absolute right or wrong answer here, and neither option will make or break your financial situation. You are already doing a lot of things right, maintaining an emergency fund, saving for retirement.

If the dollars in question are going into the new house either way and you are not convinced with one option over the other, perhaps split the difference and put half in savings and half toward the debt. You can always take a chunk of money out of savings and pay down more debt at any time. Go with what your are most comfortable doing because there’s value in comfort too.

http://wisdomfrommywife.blogspot.com

The reason is flexibility for the new purchase. If you are depending on the sale of your old home to payoff your loans and fund your new down payment you will be tied to closing at the same time.

I had to do that this last year and it was difficult in our sliding market, it put pressure on us to close quickly and reduce our price when we found the house which we wanted to move into.

Finding the “ideal” piece of real estate is a game of being both ready to pounce and able to wait for the right deal. If your next downpayment is locked up in your old home, you lose the ability to pounce (unless your 20% is in a HELOC that has enough room in it to write a check for your new downpayment)

The 20% is NOT HELOC. No variable interest rates involved. You’re right that we considered putting the savings into a high-yield savings/CD. Probably earn about 4-5%. The reason the interest rate is so low for the 20% is that our housing costs are about 15% of our income, as opposed to the typical 25-35%. It’s a VERY small house, though, hence the desire to move before the advent of kids.

We are contributing to retirement, have an emergency fund, etc. The big question for us is that we’re leaning towards saving, then maybe upping our payments just a bit, that way we have some ability to “move fast” on the market when the time comes and we find the right house, as opposed to waiting for our house to sell.

Keep the suggestions coming. They’re most helpful!

Assuming you’re going to sell at the same time as buy, I’d make sure you have enough to make the initial payment to the escrow account (in my part of the country $1000-2000 seems to be the norm). Then I’d put the rest into the debt with the highest interest rate.

Hopefully your current mortgage + your increase is close to the amount you will be paying on the mortgage for your new house, so you’ll have less sticker shock when you move.

I have an Interest Only mortgage at 5.25% because I invest the difference and make 15%. Always put your money where it yields the best.

This is an excellent point. When we bought this house, our home-equity loan was a short-term thing and the interest rate didn’t come into play as a consideration. It was a move of neccessity.

But now that we’re in it, the HELOC I carry (which represents former credit card debt) is a burden, and especially because of the adjustable interest rate. That rate has jumped from arount 6% to over 9% in the past three years. That’s alarming.

Paying down that HELOC is now my top priority. I’ve shoveled money at it the past few months, and now have it down below $15,000. As I’ve said many times before, my goal is to have that thing eliminated by this time next year. That’s ambitious, but I think it can be done.

It sounds as if Matt and his wife are good at planning for the future. This probably means they’ll have plenty of time to take the money out of their home in order to use it for a down-payment. Good advice, Jag.

If the answer is no, then pay off the 20% loan and start saving additional money for a down payment with your income. Hopefully the value of your home will increase in the next few years, so your equity will also increase. If you add that to the additional savings, you’ll be in great shape.

If you use the 20% as a down payment I think you’ll be giving yourself a false sense of how well you are doing. You really haven’t “saved” anything - you’ve just moved money from your home to your savings account.

My wife and I bought our house with an 80/15/5 loan in 2002. We aggressively paid off the 15% and then we closed that line of credit. As I read about people struggling to pay their HELOC type loans due to rising interest rates, I feel very strongly that we made the right move.

-J