The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: FIRE Realtor on August 26, 2018, 08:32:16 AM
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Hi,
We currently have no debt besides $250K mortgage at 4%, and are considering buying a different house in about a year. Where is the best place to put $150K? Pay down the mortgage right now, or is there a better place to keep it for the next year?
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I'd put it in a boring savings account if you plan to use it in a year. Look for something returning ~1.8%. If you you know you don't want to buy for 1 year and there's no chance of changing your mind, perhaps a CD returning ~2.5%.
ETA: Putting this money into your house doesn't change you payment and decreases your liquidity. It's a lose-lose for you in your situation.
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If you put the $150K toward the mortgage, it will reduce your interest cost for the next year by ~4%, or ~$6K. If you are sure you will move in a year and will get the money back from the sale of the current home, "earning" 4% on the $150K is not bad at all.
There is the liquidity issue COEE noted, but if that is not a concern then 4% beats a savings account or CD.
The common "pay mortgage vs. invest" question is usually about a long term mortgage vs. stock investment, in which a lower but guaranteed return is compared against an expected higher but not guaranteed return. And, you could put the $150K into the stock market. If your after-tax return for the year is >4% it will have been a good choice. If not, it won't. But if you don't sell in a year, and in fact remain in the current house much longer, the odds of the stock market returning >4% probably increase.
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If you put the $150K toward the mortgage, it will reduce your interest cost for the next year by ~4%, or ~$6K. If you are sure you will move in a year and will get the money back from the sale of the current home, "earning" 4% on the $150K is not bad at all.
There is the liquidity issue COEE noted, but if that is not a concern then 4% beats a savings account or CD.
I agree that this is a good point, but only if liquidity isn't a concern.
I would not put the money in the market for any reason if you want to see the money again in 1 years' time.