Author Topic: Short term investing of down payment funds  (Read 1985 times)

NorCal

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Short term investing of down payment funds
« on: July 18, 2014, 04:15:11 PM »
Hello all,

  My wife and I have been saving up for the past several years for a down-payment on our first home.  We've gotten to the point that we have enough to put ~20-25% down, depending on how much house we eventually decide to buy.

   Lo-and-behold, right as we were getting ready to enter the housing market, my job moved an hour away.  Long story short, I need to find a new job.  This means I won't be in the housing market for at least 6 months, if not 1-2 years.

  My current challenge is figuring out what to do with our down-payment money.  It's a lot of cash to be sitting in CD's and savings accounts.  Yet we still plan to buy the house in a few years, so I'm not about to put it in the stock market.

  I've been considering putting some of it towards our student loans.  Yet our student loans at 2.1% are cheaper than I expect to get on a mortgage, so I don't really see the benefit of this over a bigger down payment.

  Any thoughts?



thedayisbrave

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Re: Short term investing of down payment funds
« Reply #1 on: July 18, 2014, 04:29:20 PM »
What's the size of your student loan debt vs. your cash stash? If the student loan debt is just a small portion of the total cash, I'd pay it down - that's a 2.1% guaranteed return which certainly beats anything you'd find at most banks right now.  You can use the money you would have paid to the loans every month to replenish that stash as you figure out what to do with the house/job.  I'd be hesitant to throw ALL my house cash into paying off student loan debt though.

NorCal

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Re: Short term investing of down payment funds
« Reply #2 on: July 18, 2014, 05:33:33 PM »
That's where my mind initially went.  I certainly like the idea of having student loans paid off.  The student debt is about a quarter of our down payment fund, so it could be paid of fairly easily, and with cushion. 

Yet at the same time, I just hate to pay off debt at 2.1% only to take on more long term debt next year at ~3% (after accounting for the tax deduction).

As I was writing this, I decided to do the financial math on paying the debt down now versus adding that money into a down payment in two years.  The Net Present Value of putting the money towards a down payment in two years (earning 0% on it in the meantime) compared to paying down debt at 2.1% is about $6.4K.

I guess I just need to determine if the psychological value of having that paid off is worth $6.4K over 20 years.

LuckyMe

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Re: Short term investing of down payment funds
« Reply #3 on: July 21, 2014, 08:37:02 AM »
For money you need in the near future, I would keep it in a high interest online savings account or short term bond fund at Vanguard.  You'll earn just under 1% interest but minimize risk to your principle.