Save Cash vs Pay Down Mortgage

[REatc]

I have about 50k in home equity. I will be selling in 3 years and moving states. I think I will need around 100k for a new house down payment plus all other expenses buying a house. Would it be better to just stack cash in my online savings account or pay down the mortgage? Paying down the mortgage would be a better return than the online savings but I’d lose some flexibility. What would you choose?

I already have a good enough emergency fund plus a taxable account if an extreme emergency came up.

[rebel_quietude]

It's hard to know, without an idea of your mortgage rate, the return on your savings account, the size of your mortgage, whether you max out tax advantaged accounts, etc.

At first blush, I'd say pay into whatever has the highest interest rate / best return.

However, you'll likely get more useful advice if you fill out a case study - https://forum.mrmoneymustache.com/case-studies/how-to-write-a-'case-study'-topic/

[REatc]

Yea I max out all my retirement accounts.
Mortgage is 145k balance at 3% rate. Currently house is valued at 220k. So 75k equity but some of that will disappear in transaction costs, hence the 50k conservative estimate.
Online savings is like 0.5%.

[ZaraThustra]

A 3% return v. a .5% return is a slam dunk for me.

I guess it depends on how close you are to having $100k in cash?

You'll.probably need to make your offer on the new house contingent on the sale of your existing one, unless you plan on renting after you move? That might be an option. Rent first in the new state, and take time to find a house you like without the pressure of selling your existing one.

[aetheldrea]

What if your house takes longer to sell than you anticipate?

If you didn’t put money towards the mortgage, would you possibly be able to make an offer on a house in your new state without it being contingent on the sale of your old house? Would you have enough money to even move? Keeping to cash gives you a lot flexibility that a low but not paid off mortgage balance doesn’t. Once you put the money into your mortgage, it’s hard to get out.

[REatc]

The condo area we live in is very desired area. All the other units that have gone up for sale have sold within a week of listing, this has happened year over year consistently. I assume my condo would be no different. I also will be transferring for work so I would get a year in advance notice, so I would have a year to sell my condo. Then just rent a place until I move states.

[clarkfan1979]

I have about 50k in home equity. I will be selling in 3 years and moving states. I think I will need around 100k for a new house down payment plus all other expenses buying a house. Would it be better to just stack cash in my online savings account or pay down the mortgage? Paying down the mortgage would be a better return than the online savings but I’d lose some flexibility. What would you choose?

I already have a good enough emergency fund plus a taxable account if an extreme emergency came up.

For the past 10 years, I've been making the minimum payments on my mortgage for primary house, mortgages for rentals and student loans. All extra money goes into real estate and stocks.

I realize that conventional wisdom says to not buy stocks if you need the money within 5 years for a house purchase. However, what about the people who are aggressively saving and the housing market blows right past them? If they put that money in the stock market, they would have a chance to keep up with rising housing costs. If they keep the money in a savings account and getting 0.5% it becomes much more difficult.

I don't really buy into the cautionary tale of what happens if the stock market tanks and you need the money to buy the house? The stock market goes up 8/10 years. If you buy stocks to use for a house purchase, you have an 80% success rate. There is a 20% chance that your stock value goes down. Even if the stock value goes down, housing prices tend to go down, so it's actually not as bad as you would think. Every decision includes risk. Holding money in a savings account is risky because you lose out on so much opportunity cost. Holding money in a savings account is not a safe bet. Not in this current environment.