Author Topic: Best Cash Storage  (Read 569 times)

REatc

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Best Cash Storage
« on: August 17, 2020, 02:12:03 AM »
My girlfriend and I will be moving in 2-4 years and will be selling our current condo. We would like when we sell to move with enough cash for a down payment of 100k~ on a nice up to 500k house. With current equity we would need about an additional 75k~  saved to reach 100k~. I am in a dilemma on where to store cash.
We already have an emergency fund, as well as online saving account and a brokerage account. Currently Ally is paying 1.0%~ for the high yield saving account, our mortgage interest is 5.125%. Doesnít it make sense to pay extra into the mortgage to get a 5.125% return vs 1.0% for Ally, even if we donít have immediate access to the fund, I donít care about money being locked in until you sell. Additionally, I donít want to store extra cash into the brokerage account since itís only VTSAX, and since I had a weird thought of money can only go into this account and not be touched for 10 years so compounding can do itís thing. Iím not opposed to putting it into VTSAX, Iím fine with volatility, Iím just worried about withdrawal from the taxable account.
Is any of this rational and make any sense? If I didnít ask the question I would probably just pay into the mortgage for the guaranteed return. Thoughts?

Dicey

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Re: Best Cash Storage
« Reply #1 on: August 17, 2020, 02:44:19 AM »
My girlfriend and I will be moving in 2-4 years and will be selling our current condo. We would like when we sell to move with enough cash for a down payment of 100k~ on a nice up to 500k house. With current equity we would need about an additional 75k~  saved to reach 100k~. I am in a dilemma on where to store cash.
We already have an emergency fund, as well as online saving account and a brokerage account. Currently Ally is paying 1.0%~ for the high yield saving account, our mortgage interest is 5.125%. Doesnít it make sense to pay extra into the mortgage to get a 5.125% return vs 1.0% for Ally, even if we donít have immediate access to the fund, I donít care about money being locked in until you sell. Additionally, I donít want to store extra cash into the brokerage account since itís only VTSAX, and since I had a weird thought of money can only go into this account and not be touched for 10 years so compounding can do itís thing. Iím not opposed to putting it into VTSAX, Iím fine with volatility, Iím just worried about withdrawal from the taxable account.
Is any of this rational and make any sense? If I didnít ask the question I would probably just pay into the mortgage for the guaranteed return. Thoughts?
WTF? 5.125%???  Do you have a low credit score or some other impediment to refinancing?  First things first here.

REatc

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Re: Best Cash Storage
« Reply #2 on: August 17, 2020, 03:28:33 AM »
My girlfriend had a low credit score at the time of the loan. Now it is 750ish. We got one quote for refinancing and it only broke even after 2 years. And then it still wouldnít make sense to me to refinance then just pay down the mortgage

MustacheAndaHalf

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Re: Best Cash Storage
« Reply #3 on: August 17, 2020, 05:28:51 AM »
You're correct on the math: when your savings account earns 1% and your loan consumes 5%, it makes more sense to pay down the loan (after setting up an emergency fund, which you've done).

It is difficult to break even on a loan in just two years.  If your first attempt involved points (% of mortgage), you might try again, but for a no points loan.  I'd also recommend trying a credit union, since their goal is benefiting members (who own the credit union) rather than profits for shareholders.

Dicey

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Re: Best Cash Storage
« Reply #4 on: August 17, 2020, 06:46:21 AM »
My girlfriend had a low credit score at the time of the loan. Now it is 750ish. We got one quote for refinancing and it only broke even after 2 years. And then it still wouldnít make sense to me to refinance then just pay down the mortgage
This is so wrong. Let's guess you have 27 years remaining. After the two year payback period, that's still 25 YEARS of significant savings. I agree with MustacheAndAHalf: keep shopping!

And hell yes it totally makes more sense than paying down the mortgage. Google Compound Interest asap.

Congratulations on the big credit score improvement!

terran

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Re: Best Cash Storage
« Reply #5 on: August 17, 2020, 07:40:42 AM »
My girlfriend had a low credit score at the time of the loan. Now it is 750ish. We got one quote for refinancing and it only broke even after 2 years. And then it still wouldnít make sense to me to refinance then just pay down the mortgage
This is so wrong. Let's guess you have 27 years remaining. After the two year payback period, that's still 25 YEARS of significant savings. I agree with MustacheAndAHalf: keep shopping!

And hell yes it totally makes more sense than paying down the mortgage. Google Compound Interest asap.

Congratulations on the big credit score improvement!

The OP says they're moving in 2-4 years, so they won't have 25 years of savings since they'll be getting a new mortgage around the time the refinance starts saving them money.

Dicey

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Re: Best Cash Storage
« Reply #6 on: August 17, 2020, 08:20:53 AM »
My girlfriend had a low credit score at the time of the loan. Now it is 750ish. We got one quote for refinancing and it only broke even after 2 years. And then it still wouldnít make sense to me to refinance then just pay down the mortgage
This is so wrong. Let's guess you have 27 years remaining. After the two year payback period, that's still 25 YEARS of significant savings. I agree with MustacheAndAHalf: keep shopping!

And hell yes it totally makes more sense than paying down the mortgage. Google Compound Interest asap.

Congratulations on the big credit score improvement!

The OP says they're moving in 2-4 years, so they won't have 25 years of savings since they'll be getting a new mortgage around the time the refinance starts saving them money.
Plans change. Who knows where OP will be in 2-4 years? It's still smart to re-fi and roll the costs into the new loan. That way, if they stay, they're locked into a much lower rate. Honestly, if they had said something like "Our credit is bad and the best rate we can get is 5.125%, but we're going to buy a house anyway, even though we don't plan to live there long", the face punches would have been free flowing. The OP's logic for avoiding a re-fi makes no sense.

REatc

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Re: Best Cash Storage
« Reply #7 on: August 17, 2020, 01:04:59 PM »
I know plans change, but where we live now we will not be living in 5 years from now. We arenít just moving houses, we are moving out of the state. Itís a terrible place to try and grow and progress as a motivated person.
I donít see how it is logical to refinance, increase the loan amount, then try and pay the loan back down. Iíve done the math on a 4.0% loan and it just doesnít work out. Keeping and paying down what we have now shows more cash savings