Author Topic: Paying student loan vs. Using money for down payment  (Read 3352 times)

Studentloanssuck

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Paying student loan vs. Using money for down payment
« on: April 06, 2015, 08:14:32 PM »
So the answer is clearly obvious to me but my husband wants a "second opinion." We have a little over 100k which has been sitting in a Money market account for the past 5 years. I have a ton in student loan debt and I want to put 40k towards the high interest loans which range between 6-8%. My husband thinks we should keep the money in the money market account and use it for a down payment towArds a house in 3-5 yrs. However, I really don't think it's necessary to put the whole 100k towards a down payment. I'd rather get rid of the debt first. Plus it makes me cringe to think abt how all that money is sitting in the money market account and making absolutely nothing while my student loan interest is so high. Please help my husband understand that getting rid of debt should be our main priority. Thank you!

Merrie

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Re: Paying student loan vs. Using money for down payment
« Reply #1 on: April 06, 2015, 08:39:28 PM »
Here is a dispatch from several years in the future:

I got a little free with my money after I graduated. Not too free, but I could have done better. Nonetheless, I made so much more than our expenses that I saved up a $12k downpayment and a $10k Roth donation totally painlessly. But I could have done SO much more. I could have paid off my student loans really easily if we had pushed back the house purchase just a year or two, and then put 20% down on the house so we didn't have to pay stupid PMI every month, but I let other factors sway me against my better judgment. If I could do it all over, I would kill the student loan ASAP after graduating, and wait to upgrade my life, no matter how much my husband whined about the size of our apartment.

Kill the student loan now. Your future self will thank you. Your husband's future self will be glad not to have to listen to your future self grouse about the student loan anymore.

Once you have the student loan gone, the money you are putting towards it each month can be used to save up for a down payment, and it'll be working for you (at some interest rate, even if you put it in relatively safe investments, NOT a money market account) rather than against you (paying the bank's interest rate on your loans).

What house are you trying to buy that you need a 100k downpayment, anyway? Unless you live in a very high COL area, that seems really excessive.
« Last Edit: April 06, 2015, 08:42:07 PM by Merrie »

MDM

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Re: Paying student loan vs. Using money for down payment
« Reply #2 on: April 06, 2015, 09:20:25 PM »
So the answer is clearly obvious to me but my husband wants a "second opinion." We have a little over 100k which has been sitting in a Money market account for the past 5 years. I have a ton in student loan debt and I want to put 40k towards the high interest loans which range between 6-8%. My husband thinks we should keep the money in the money market account and use it for a down payment towArds a house in 3-5 yrs. However, I really don't think it's necessary to put the whole 100k towards a down payment. I'd rather get rid of the debt first. Plus it makes me cringe to think abt how all that money is sitting in the money market account and making absolutely nothing while my student loan interest is so high. Please help my husband understand that getting rid of debt should be our main priority. Thank you!

Not sure what anyone can say that would be better than your words here.  Seems obvious to pay off a 6-8% loan instead of ~0.1% - is there more to this than meets the eye?

kreyc

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Re: Paying student loan vs. Using money for down payment
« Reply #3 on: April 06, 2015, 09:29:15 PM »
Sit him down; do the math; kill the loans.

My wife and I were waffling between future down payment and killing loans recently and we decided to kill the loans. We've just (as of last week) axed our high-interest (~7%) loans and we're working on the last two low-interest ones (~2%). It feels great and I know we'll feel even better when (if?) we do go the home purchasing route.

Spondulix

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Re: Paying student loan vs. Using money for down payment
« Reply #4 on: April 06, 2015, 11:33:12 PM »
So the answer is clearly obvious to me but my husband wants a "second opinion." We have a little over 100k which has been sitting in a Money market account for the past 5 years. I have a ton in student loan debt and I want to put 40k towards the high interest loans which range between 6-8%. My husband thinks we should keep the money in the money market account and use it for a down payment towArds a house in 3-5 yrs. However, I really don't think it's necessary to put the whole 100k towards a down payment. I'd rather get rid of the debt first. Plus it makes me cringe to think abt how all that money is sitting in the money market account and making absolutely nothing while my student loan interest is so high. Please help my husband understand that getting rid of debt should be our main priority. Thank you!
How much in interest income did you make on the money market last year vs interest paid on the student loans?

Studentloanssuck

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Re: Paying student loan vs. Using money for down payment
« Reply #5 on: April 07, 2015, 08:51:54 AM »
MDM, there isn't more to this than meets the eye. All I can think of is that maybe my husband is hesitant to put such a large chunk of HIS hard-earned savings into MY student loans. All of the 100k in the bank is his personal savings. I don't have much in savings b/c I try to put as much as I can into my loans. I think he would feel more comfortable putting "his" money into a joint effort like a house. 

I realize as a married couple, we should think of our money as OUR money and not "mine" and "yours." So that is likely the underlying issue here.

robbyho

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Re: Paying student loan vs. Using money for down payment
« Reply #6 on: April 07, 2015, 09:00:20 AM »
I realize as a married couple, we should think of our money as OUR money and not "mine" and "yours." So that is likely the underlying issue here.


ah, now that sounds like one of those underlying motives that maybe he is not aware of. I'd show him the math and then bring up how it makes logical sense and there is no reason not to pay off the loans unless it is an emotional or trust issue. If you guys are sharing your incomes and debts then the choice is clear.

larmando

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Re: Paying student loan vs. Using money for down payment
« Reply #7 on: April 07, 2015, 09:25:09 AM »
What would happen if you separated tomorrow? If you'd get 50k of that (or he'd get to keep half your loan), than clearly putting 40k to the loan is a no brainer. If you wouldn't then it's not for you to decide? :)

Numbers Man

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Re: Paying student loan vs. Using money for down payment
« Reply #8 on: April 07, 2015, 11:39:57 AM »
The math says to pay off the loan.

Apples

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Re: Paying student loan vs. Using money for down payment
« Reply #9 on: April 07, 2015, 01:31:49 PM »
It sounds like you two need to decide exactly how joint your finances are.  As a story for moral support, I had $60,000 in savings of which I put $11,000 in both of our Roths the week after we got married, created a joint emergency fund, and put $30,000 on my husband's student loans.  He had $65,000 in debt, which we're now down to about $10,000 a little over a year later, including the $30,000 of "my" savings.  For me, joint money really means joint money, and to marry him I was totally willing to "lose" those $30,000 if were to divorce quickly or he dies quickly.  Neither of which have happened, nor do I think will happen.  So we are firmly living out the "put the savings on the loan" camp right now.

How much would a 20% down payment on a house be?  And how much can you two save in a year?  I'm a little worried about you putting all your money on your loans while he saves his.  You two need a joint budget, even if it means you agree on a minimum amount used to slash loans each month and a minimum amount to add to savings each month.  Some amount of that $100,000 is probably more than enough for a down payment unless you live in a seriously high COLA.  If that amount is X, could you put all the money above X onto the loans?  Or if you're buying a house 2-3 years from now and can save $10,000 a year, could you put all the money in savings above X-20,000 or X-30,000 on the loans?  It would save you two the interest costs in a few years.

There are many, many ways to tackle this.  If he isn't comfortable with putting "his" money into "your" loans because he wants a joint asset, could you convince him just to pay off one loan this year?  Or all the 7-8%?  Or everything that puts you above the $2500 of deductible interest expenses per year (if your income doesn't prohibit you from claiming it)?  For some people bringing finances together is a process; you guys have to decide what your process looks like.

Also, a caveat.  We are looking to purchase a farm that would be high six figures.  The bank usually requires a 20% down payment.  For the reason of how long it will take us to save that up on top of retirement and emergency fund savings, I regret how much money we put on the loans.  Because we're so close we're just going to finish them off this year, but that $30,000 would have been nice liquid cash to have around. 

RexualChocolate

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Re: Paying student loan vs. Using money for down payment
« Reply #10 on: April 07, 2015, 05:30:49 PM »
Getting 6-8% with a 100% risk adjusted return by paying off student loans in this environment is a no brainer.

A much bigger issue financially is the house purchase: Houses are not a good idea from a cost standpoint unless you will stay in the exact same house for >7 years.