Variation on an old-retread -- paying down a mortgage while saving for new house

[skinner456]

I am new to the MMM world though in the past few weeks read 2/3 or more of what MMM has written as well as a great deal of the associated comments. I am not sure that I'll be able to go full-Mustachian and retire in the next 5 years, however as a physician not far out of training I also am not in a rush to leave my profession as I enjoy my work and want to keep at it for awhile.

I just finished paying off student loans 5 months ago and a few months away from paying off my car (I know, very non-Mustachian to have a car loan), but then my only remaining debt will be my house.  We have 12 years left on our 15-year mortgage, 3.375%, and owe approximately $150k.   

At SOME point in the next five years we will have to move to another house for better school districts (no free/public schools option in our area that we are willing to use past elementary).  Anticipating this potential move we have saved some money for a down payment ($50k) and have some money invested in a Vanguard brokerage ($33k) that while nominally is part of our overall retirement portfolio we also are willing to sell off to use towards another house.

Home prices in our area have recently been rising, and of course their is the specter of rising interest rates at some point in the next year.

The question is -- should I take all the money I have earmarked towards a new house downpayment and just plow it into my current mortgage?  While I could potentially then have my entire house paid off within 5 years if I do so (if I redirect car payments after that's done to the house payment), my concern is related to the purchase of the next house.  My downpayment would then be tied up in the equity of my current house, meaning it would be difficult to have a contract on a new house until my current one is sold, whereas at least there is some flexibility in terms of searching around the market if I have the downpayment/financing available already.   Housing in the school districts we are looking at is hard to come by, so I likely need to be able to negotiate/close quickly and I worry that having to delay closing to sell my current house would make purchasing the new one difficult.

I currently am not planning on keeping this one as a rental, but if I did then it would be difficult to also have have a downpayment available to purchase a new house.  As a physician I may be able to get a no-PMI loan with a smaller downpayment, but that obviously has its own issues. 

In terms of savings my wife and are I both maxing out our work retirement plans and using a Backdoor Roth IRA to max those out every year as well, which we have done in addition to paying down debt and saving up for the house downpayment while also putting some into 529s for our two kids (probably works out to around 30% savings but that could be off by a few %).

What do you all think?  Also before you say it, neither my wife nor I are interested in home-schooling.  Also I know there is room in our budget to cut back as well on "luxuries" that could accelerate this process, but for the sake of argument just assume the current situation.  :)

[velocistar237]

I like the idea of paying down your current mortgage because that's a guaranteed return, as opposed to investing in the market, which is generally discouraged short-term because of market fluctuations, and as opposed to putting the money in a savings account or CD, which is likely to have a smaller return.

When you move, you could sell and move into a rental first, then buy.
If you don't want to rent, you could take out a home equity loan when it comes time to buy. The interest rate would be higher than your current mortgage, but it would just be until you sold your house.

[skinner456]

How much can one normally get via a HELOC with excellent credit (currently 800+ score)?  We would potentially be purchasing a house costing $500k, so I may need $100k for a 20% down payment.

[velocistar237]

I've seen limits written as something like 90% of a home's assessed value up to some dollar amount. $100k sounds within the realm of possibility, if you can borrow that much and still have 10% equity left.

[jbfishing]

You might check to see if borrowing your down payment effects the new mortgage.  It could scare the lender if a large new balance suddenly appears on your credit report just before closing.  Not sure how the info is used but I've been asked on mortgage apps if the down payment is borrowed or gifted.

If you are concerned about being able to move quickly on a new house, then what is the advantage of paying off the current mortgage?  Like you said, then you have no down payment.  Are you worried about covering two mortgage payments while you sell the 1st house?  One thing I've learned is that houses sell faster when priced appropraitely.