Changing priorities, part two
NCN asked a good question in the comments on my original changing priorities post. He said, “Why does the fact that you might move change things? You’ll be paying less in interest, you’ll make more when you sell the house, and if you decide to stay, you’ll be closer to your goal…Am I missing a reason NOT to payoff the house?”
My response was that our mortgage interest is so low that the difference between what we can earn in an online account and what we pay in mortgage interest is about half a percent. My thinking was that I’d rather be sure to have my money + interest than pay the house off and possibly lose a little.
After thinking about it more though, realistically speaking the chances of the value of our house slipping below what we’ll have paid for it are pretty darn slim.
I guess the real reason for the temporary hold off is that I’m an extremist. What if we both lose our jobs? Sure, I have an emergency fund, but if I had to make the entire house payment alone it wouldn’t last as long. And the last time I had to get a job it took me several years to get one. Also, it makes me nervous to live in a place where so many things have to be trucked in. What if our house is suddenly worth nothing and we have to move? Unlikely, but I’d hate to be out all that money and have to start over somewhere else with nothing. I like to hedge my bets.
But, it’s been my experience that acting or reacting out of fear is almost always the wrong choice. So that’s why the temporary hold-off — to give us time to consider things in detail while leaving our options open. Maybe all the extremist side of me really needs is more information and a better idea of the odds. This choice gives both my gut and my brain a temporary reprieve, while we try to gather information so we have a better and more informed shot at predicting the future. It will still allow us to have the funds on hand if we need to or want to use them for our mortgage.
November 16th, 2007 at 12:08 pm
Have you ever considered investing in ways that will make your home more sustainable as well as increase its worth? Every home is different, but solar panels and water reclamation tools are tried and true in the southwest, and almost always increase the worth of the home while decreasing your dependence on “trucked-in” resources.
November 16th, 2007 at 1:27 pm
Yes, we have considered solar and will probably do that at some point if we stay. Water reclamation I hadn’t thought about though. Is that possible when it hardly rains? :)
November 16th, 2007 at 3:36 pm
I sort of had the same thought but I think I agree that it makes more sense to stash the money in savings vs. toward the mortgage because it is more liquid that way. You have a good interest rate on the house so it’s not going to cost you much to buy that liquidity and that liquidity might really come in handy in a move. You need earnest money at the least if you buy used and if you buy new, the cash outlay prior to closing can be really high. Also, it might buy you more flexibility on closing dates if you don’t have all your resources tied up in the old house. If for some reason you needed to carry both mortgages for a while, this would help you do so. Buying a home and moving is expensive, no two ways about it, so having some extra $ in liquid savings makes a lot of sense to me. Maybe split the difference and start saving 1/2 and still paying 1/2 since you are quite a ways from your potential move date?
November 16th, 2007 at 4:20 pm
Have you considered a mortgage offset account. I’m assuming that you have them in the US! You can have your extra money available to you in an offset account, but meanwhile it’s reducing the interest on your mortgage. Yes you would lose that little bit of interest, but you would be saving interest on your mortgage.