Your mortgage: keep your money
When people sell and then buy a home, they tend to set themselves on autopilot when it comes to the bottom line they earn from the sale. What I mean by this is that people who sell a home often assume that the best thing to do is turn that money into a down payment on a new home. It’s a smart move, but is it always the right thing to do? Maybe not.
Here are three things to consider that may make you want to save your money from the sale of a home:
- Use the money for fun and for the future
This idea probably won’t be very popular, but I’ll say it anyway. Interest rates are very low right now which makes home ownership quite affordable overall. Many of us focus a great deal of our attention on the future and on building net worth to help us in retirement. Why not do both? Instead, use the funds to focus on the present. Splurge this holiday season for yourself / your family, fund an exotic vacation, or throw an epic holiday party with all of your friends, neighbors and family. Use the rest to focus on the future by paying off long-term debt or investing in the stock market.
- Use the money to repay / reduce unsecured and / or personal debt
What is the net benefit of using the proceeds to reduce the amount you need to borrow on a new mortgage when you have thousands of dollars in other debt? Each $ 1,000 funded equals approximately $ 6 of a monthly mortgage payment on a 30-year note. If you moved $ 40,000 of the proceeds from the sale into your new home, you would save around $ 240 per month, but if you have the same amount of consumer debt (credit cards, car loans, student loans, etc.) , the payments associated with these will far exceed the reduction in mortgage payments of $ 240. What could be better for you? Have a lower mortgage payment, but still have significant consumer debt or little or no consumer debt with a slightly larger mortgage payment?
- Use the money to update / improve your new home
Most buyers buy existing homes rather than new construction, which means there’s a good chance they want to change something about the home. Wouldn’t it be nice to make the awesome new home you bought a perfect home with things like new carpet, paint, or a remodeled kitchen? Saving your revenue can fund such projects while also improving the value of the asset you just purchased. What could be better for you? Have home equity without a lot of money to fund improvements or have a perfect home without a lot of equity?
The purpose of this article is not to downplay the importance of using the proceeds from the sale as a down payment for a new home. It might be the smartest decision you can make, but you’re also in a position of great flexibility, so don’t fall into the trap of letting this be an autopilot decision. Take the time to think about your options.
This weekly sponsored column is written by Mike Miles of Fountain Mortgage. Located in Prairie Village, Fountain Mortgage is dedicated to educating and empowering clients to make the best financial decision possible for their situation. Contact Fontaine today.
Mike Miles’ NMLS ID: 265927; Fontaine Mortgage NMLS: 1138268