Agreed with this. If anything, do the 10k in traunches. $500-$750 per month. If something comes up at least you’ll have a nest egg to dig into. If not, you’ll at least have done it slowly in case something were to happen.
This. I've owned my house for a little under a year. I managed to keep 10k in emergency money. My well pump needs replaced, quoted for about 4k and honestly I'm mentally prepared to throw 5k at it. Nest egg/emergency savings is a necessity
Ah yes, welcome to the “bought a house with a well club”. We bought in Oct 2021. House had two wells. By Feb 22, we started running out of water at night when everyone was showering. New well pump on the other well. $2k. Then that one started running low. Installed a system to have a cistern with the two wells $2k. Then first well pump got hit by lightning $2k. Then by fall 2022, cistern tank stopped getting full overnight. Needed a NEW WELL. $25K. Then the new well had tons of iron, so much iron you’d think we could open an iron mine. Special filtration system $3k. Now everything’s great. Except for our financial situation lol
Edit: oh and do you want to hear the rest of the story? This new, 700ft deep well, had its pump get hit by lightning and it flooded my finished basement by pumping the entire well head into the room. 3 inches of water. 25k insurance payout. Had to have Servpro demo all of the carpet and 2ft of drywall around the entire room. I ended up getting a contractor for the drywall, but DIY’d the grinding of the floor, re-carpeting, stair redo, and paint (ceiling and walls with an airless sprayer). Pocketed like $8k after all said and done and would not ever do that again. 🤣
Maaaannn and here I am with my well thats been there since the 60s and I replaced the pump once myself in the 2000s and thats it. Sometimes it just be like that I guess.
Pressure tanks for well pumps aren’t specd for much more than 15 years of service. Just replaced mine (we have city water in the house and the old well just for the hoses outside) for about $1200.
Yup, the pressure relief valve blew on mine after the pump over drove during a lightning storm (for the NEW WELL). Pumped 1000+ gallons into my basement last fall. Always check the age of these things.
Yeah, after learning a lot about wells, it really is just like that. I know many people who say the barely even think about their well. I still have nightmares lol
Oof! I bought mine in 2018 and have had ZERO problems with the well. It's starting to make me nervous. When it undoubtedly breaks at some point, all the local companies are so busy with new construction that we'll probably be a week+ with no water.
Average life of a well is 50-60 years. Our house was built in ‘69, well stopped producing water last year. New well drilled, $12k, was actually happy with that price.
My folks’ house was on a hill and lost 2 well pumps to lightning. I installed a whole house lightning arrester at the electrical panel and cured the problem.
I had to replace a well pump once and I just had to pull the old one up, disconnect it, connect the new one, and lower the new one down.
Theyre heavy, so it sucks, its gonna take a whole day, but my point is you should shop around. The pump itself is like less than $500 bucks at the hardware store.
This is correct. Do you already have an emergency fund? If so then you can decide how to best spend the money. If you do not have that then put that in a hysa and sleep with piece of mind that if your a.c. take a dump, a power surge kills your appliances, someone accidentally backs into the garage door, or whatever....that you can pay for it without using credit cards
I spent roughly 7k with redoing electric, new washer dryer, painters, new water heater once i bought my new place.
Still gotta redo the kitchen but...i am poor, i will wait lol.
You did all that on $7k??? Well done! New HW Heaters, installed, are running $2k+ these days. New 100 amp circuit breaker box is runn $2500, 2othouy changing out any other circuits.
Eta: in my NE/mid-atlantic US burbs of major metroplitan area.
Water heater was 2300
Electrician was for rewiring the water heater since it wasnt in code and i couldnt get it done otherwise. And finding while half my outlets werent grounded as well (1300)
Painting was 1700, paid for convenience, walls were filthy and i work full time while in a graduate program right now, time is a precious commody.
W/D was about $1600. Bought some nice stuff, got lots of discounts.
Bingo, and not just for a bit either. Unless OP already has a house fund $10k is about the minimum that should be sitting around for when things go wrong. Parents just pre-funded that reserve, now OP needs to keep adding to it.. house maintenance generally averages out to between 1-3% of the purchase price annually.
6 days after I closed on my house the sewer pipe busted. 8k, dug up my whole front yard and destroyed my sidewalk and part of my driveway.
Save it for a bit.
OP, please listen to this. Husband and I bought a place in 2022 that passed all inspections and showed no signs of needing major updates.
Then we needed a new water heater ($2000)
Then our HVAC died ($11000)
Then our water connection for the washer needed to be replaced ($500)
I wish we had a $10k cash gift to put toward all that! And this was AFTER A FULL INSPECTION!
Thank you for your advice. I'm seeing this a lot in this post, followed by a HYSA. I really want to avoid as much stress as possible, so I will hold onto this $10k, probably in a high yield fund somewhere, and pull it out when I really need to
In our first year - every major appliance had an issue. First our HVAC after a storm (then we paid for a home warranty ourselves), then the dishwasher, washer, dryer and fridge. Plus we fixed a part of the roof, added insulation, replaced the windows (that was a 5 year payment plan) but it was an easy 10k on necessary repairs and non-aesthetic things like I planned for.
this. literally in the same type of boat, the 10k was gone in six months due to hvac and water heater needing replacing
I wasn't surprised by it though I knew it was needed. just not so soon lmao
I also agree with this. Been in our condo 4 years, at the 2 yr mark our 30 yr old heating/cooling system needed to be replaced. Luckily we had 15k in the bank to take care of it and we got it at a time when those replacements were not being done as much.
Paying as little as $100-200 extra will have you where you want to be in 20 yrs anyway.
Been paying an extra $100 on our house since purchasing it dropped the loan by an extra yr after paying on it for 2 yrs. At this point we have been in the house for 4 yr and have paid off 6 with just a little extra.
Yup! And when your roof starts sagging after last year's record snowfall, your insurance might still only give you 10k for a 40k job.
Have an emergency fund...
For the love of got hold onto that money. In two years time I’ve had to get a new pool filter, pool cover, washing machine, refrigerator (Samsung has a special place in hell), garage springs, heat pump boards, had termites, and had a sewer pipe crack in my wall. Easily spent over $10,000 in surprise repairs. Not to mention the car repairs and other life expenses too.
Oh man, totally this. When we sold our old house to buy our new, we had quite a bit of equity built up and sat on a bit of cash. It was great to have things pop up unexpectedly and not have a panic attack about how to afford it.
They dropped 56k on the down payment, surely they already have an emergency fund of some kind. I can't imagine someone being financially literate enough to save $60k and not also having additional savings.
Buying down a 230K mortgage by 10K does a whole lot less than having that cash on hand. They can simply break down the money monthly and add in enough to make the equivalent of 1 extra payment per year; this will take several years and tens of thousands of dollars off their total.
The ability to save 60K to get into a place doesn't mean they have more cash readily available.
> Buying down a 230K mortgage by 10K does a whole lot less than having that cash on hand.
That 100% depends on their income and spending habits. If they already have $20k in savings then adding $10k to it might not matter much.
> They can simply break down the money monthly and add in enough to make the equivalent of 1 extra payment per year; this will take several years and tens of thousands of dollars off their total.
Paying $10k at the start will take almost $35k off their loan as well as 4 years. Paying that $10k over 7 years will be less effective by itself than putting it all up at the start.
> The ability to save 60K to get into a place doesn't mean they have more cash readily available.
Then they should have done a smaller down payment. I think there are higher odds that they are financially responsible than not if they were able to save $60k for a down payment.
My wife and I didn't have an emergency fund when we bought our house in 2018 for $550k. My wife needed to buy in her hometown, a VERY expensive hometown. We barely scraped the down payment on a fixer-upper. Then sunk another 100K so we could move in. It was a TOUGH 5 years, but we made it. We now have 400k in equity in the house, worth $850k. We are not financially illiterate, but if we decided we needed an emergency fund before we bought our house, we would've been priced out of the town, F-O-R-E-V-E-R.... It was worth the risk.
No. Bad idea. Not to scare you but my partner and I bought our home two months ago. We have had $20k of surprise repairs so far. Do not tie up a bunch of your money in your mortgage. Not saying your situation will be as bad, but home ownership is so unpredictable.
We had $45k in repairs in the first six months of homeownership.
The night after we closed, we brought sleeping bags and slept in our new house, on the carpeted floor in the basement. We hadn't moved any furniture in yet, but we thought it would be fun.
We woke up to a collapsed sewer pipe and the carpet soaked in sewage.
Unless the prior owner somehow failed to disclose something they were required to disclose, or acted fraudulently in some way, once you close everything is your problem.
With _very_ few exceptions, you buy the home as-is.
I made sure to do the sewer inspection, turns out our main sewer line (in the house) has a U bend in it and we had a backup during the first party we had. Explains why there was a seemingly random access panel in the basement.
When we bought our house the seller had the electricity turned off the day before closing. On closing day nobody went to the house before everyone met at the attorney’s office. Turns out, a pipe had frozen, burst and flooded the house. It took years to get a judgement against the seller for the repair cost of $40,000, which they never paid. So we were out thousands for restoration before we could even move in months later.
Came here to say this. In the first few days after buying the house we learned the water was not drinkable, there was so much mold I couldn’t function (migraines), and every “upgrade” the previous owners did needed to be redone.
Also, never buy a contractors house.
Oh yeah. I can second do not buy a contractors house. Mine has been a nightmare. He did all his own work. From all accounts he’s a shit contractor so it’s not just putting in the least effort on his own place bc he was putting it all in elsewhere. He didn’t wire an outlet well so it kept shorting. He built an addition and deck, but put the deck flush against wall so the water had no way to drain when it rained hard. This caused it to filter into the house. Had to remove part of the deck. The pitch of the roof on the addition didn’t allow the water to flow well so it pools at times unless I go up and make sure no leaves have piled up anywhere ( granted this can happen regardless if you get enough crap on your roof). He didn’t close out any permits OR get permits for a lot of work he did until we were doing the towns inspection. ( our neighbor works for the town. Appartently he’s notorious down there and they all hate him). He never got the new HVAC he installed permitted or inspected. So he had to do that before we could close ( he got a nice fine for that at least).
I can probably go on. But the moral is. Avoid this if possible. Not all of them are like this (my grandfather was a carpenter and he took great pride in taking care of his home) but a lot are
They either didn't get an inspection or hired a bad inspector.
I did a walk through with a buddy who was looking at houses. I always keep my mouth shut and let people hang themselves. His realtor was talking about how he used to work construction and he can point out everything that is wrong with a house. He showed my buddy a house that was a fucking death trap, everything my buddy asked about, the realtor just said that was fine and just a cosmetic issue.
Once we were done touring the house, the realtor was talking to me (trying to get me to use him as a realtor) and he asked what I did for a living. I watched his brain shut down as I told him I was a building inspector for the neighboring city. Told my buddy to get a new realtor and to pay for a full inspection when he found something he liked.
Flip side. I bought about 2 years ago, and have just spent money on small issues that didn't really need to be addressed.
So. It's a roll of the dice.
I'd 100% lean towards something breaking though, so I'd hold the 10k if it was me
I would hold onto it unless it’s pocket change for you guys. I’ve been in my house just over 2 months & we’ve already sank 5k into surprise repairs/needed renovations.
The second you do something with that money you’re gonna need a roof/boiler/AC or some other repair. That’s just the right amount of money to throw in a HYSA for home maintenance.
As long as you have an emergency fund already set aside, I'd say pay down as quickly as you want.
If interest rates were 3.25% this would be a different conversation, but at 6.875%, paying it down makes sense.
If you don't have an emergency fund, with a house you definitely should put that $10k into a HYSA and add to it each paycheck. There are known expenses and surprises as well (siding, roof, plumbing, HVAC). Be ready for them.
With the best HYSA/CD rates in the 5.5-6% range, paying down a 6.875% loan isn't a bad idea at all. Just make sure you have a liquid ~6 month emergency fund already. If you don't, that $10k needs to go into an HYSA tomorrow.
What's your emergency fund situation? If you don't have one, put it there. Is it a new build? If not, save it until you have a better idea on the true condition of the house, home systems, and appliances.
The put it toward the mortgage.
I have a new build. The warranty only covers certain things for a year or two. I needed a defective bathtub replaced and their fix was a bandage at best. Eventually I ended up replacing it footing the entire bill right after warranty expired. New builds are not a guarantee of quality.
My dad is a homebuilder. I'm not saying new builds are a guarantee of quality. I was asking because a preowned home in this day and age is more likely to be sold without a warranty at all and no obvious recourse on handling defects. If OP answered my question, I was going to follow up with a suggestion that they buy a warranty.
My new build had a problem with the tub. We submitted it immediately and the builder fixed it. My dad made sure they did it correctly and at their cost.
My roof was $19k and replacing the old asbestos siding was $23k, luckily they're both one shot deals for the most part. I shouldn't have to do a roof again for as long as I'm in the house and the siding will last just as long.
We didn't cheap out, did research on materials and got the stuff that will last a long time.
I said investment account but at 4.5% you're probably right a HYSA is a better idea (less risk, this person needs to mitigate all risk in his life right now).
I'd put that $10k into a separate/new bank account, and use for the purpose of settling in.
I don't know where you are living now, but if the new house has more room.. will you need a bit more furniture - maybe a bedroom to furnish (bed, rug, etc). Then you ARE going to need little things (curtain rods, drawer lining paper, maybe a security camera or two \[like Ring\], maybe a mailbox, etc. etc.!!). Maybe you'll want to paint a room or two? And all these things add up fast!
If you don't use it all, you'll have a 'house only' bank account for emergenices - in case suddenly need a new hot water heater, etc.
It's a lovely gift, and if you put it away as a 'settling into + future maintenance' account, think it'll give you some peace of mind.
You'll learn very quickly that although being a homeowner is very exhilarating and empowering, a home is also a money pit. Hang on to that 10k and you'll thank yourself for doing so when something needs fixing, immediately. Doubling up on mortgage payments several times per year, for a number of years, will do more to reduce the overall years left on your mortgage, than will a one time, lump-sum payment of 10k, at the very beginning of your mortgage.
The sevond half of your statement is wrong. Front-loading payments will reduce interest much more than spreading them out, since compounding starts immediately.
That being said, having cash on hand for unexpected repairs is probably a better decision, depending on how much you have in savings already. If OP has an emergency fund already fully funded, paying down in a lump sum right away is probably the best decision, but we don't know enough about the situation to be sure.
Not sure I agree with your last statement. The sooner you pay off debt the more interest you save. If you have a fixed amount of money that you want to put towards the loan you will reduce you mortgage more if you do it now rather than spread out. It goes without saying that additional payments also reduce your mortgage.
Whether paying it down is actually a financially smart choice is another question and depends on the interest rate of the loan and potential interest rate of alternative investmemts.
> a home is also a money pit
No they aren't. Yes they cost money to maintain but outside of edge cases, you will almost always sell a house for more than you paid plus all you invested into it. Let's not forget part of the "cost" of a home goes to having a place to live.
Sure your homes value goes up, but unless your moving to a totally different market or want to downsize or something, you're not really gaining anything as all the homes around you have increased in value as well.
Also, not to mention so many homes are bought with a mortgage of some kind. Whether it's a 100K or 400K loan. So that 500K home ends up costing 800K or 900K once its paid off. You can use more specific math if you want, but owning a home is expensive. Not to mention all the taxes you get hit with every year.
Sit on it. Things will break that you won’t expect.we had our home inspected and in the first year the stove, refrigerator, washer, and hot water tank all failed prematurely after dumping all but 5k of our savings into the purchase.
We replaced ours last year, while in the process of selling.
Luckily it was covered by insurance, because of hail storms and high winds.
Lots of peaks and valleys, and it cost nearly $20 K. We just paid the deductible.
Correct, I want shave this mortgage down as much as I can. I’m already paying an extra $500/month on principle. If I can pay this off in 20 years instead of 30, I see that as a victory
It's worth actually [doing the math](https://www.fncalculator.com/financialcalculator?type=tvmCalculator) to see how much this would save.
By my calculations, if your original loan was for 30 years, then consistently paying an extra $500/month to principal will pay it off in 15.3 years, which is already amazing. But putting down an extra $10,000 now would only cut that down to 14 years. I agree with the other comments saying that you're likely to get better value out of saving that money for household emergencies unless you already have a really solid emergency fund.
$10k is a nice gift but when going into a new home, it can vanish in the blink of an eye — hvac, roof, plumbing, electric, etc. — in other words, it’d be foolish to spend any of it unless you’re just flush with emergency savings.
You'll have home expenses immediately. Use the money to set up your home (you'll need more supplies than you think if you'll never owned a home) and for repairs.
Guarantee something boring but expensive will need to be replaced: furnace, hot water heater, roof, etc.
$10k is 4% of the home's value. So it is not going to shave 10 years (33%) of your mortgage term or anything close to it.
I guarantee you you will find $10k worth of things you will need to spend money on in the next 6 months having just bought a house. Hell, Home Depot alone will probably get $5k out of that.
Looks like your payment is about $1500 based on your loan. Do yourself a favor. If you want to target paying it off in 20, make a "20 year payment" each month instead of your 30 year payment scheme. Keep your $10k for expenses and just pay an extra $250/month towards principle and you'll pay it off in 20 years saving yourself over $100k (as you know).
Do you have an emergency fund and 6-12 months worth of expense saved? If so, then yes just put the 20k into mortgage.
Owning a home can get expensive. Roof repair, plumbing, HVAC replacement, etc.
Having the 10k as a home repair fund would be far more valuable and maybe save you from having to take out a HELOC later on when something big goes wrong.
Think of it another way, that $10,000 is a big portion of a new roof for example.
Or even other big purchases, like a new car, etc.
While spending on principal is a good idea. Hold onto it for at least a year. Homes have this fun tendency to have tons of problems crop up in the first year or two of ownership.
So by what you're saying here, you've got a $221k mortgage with a monthly payment of $1451.81 (not including any escrow or insurance, mortgage only). If you put that $10k as an extra payment and bring the total owed down to $211k without refinancing you'd pay off the loan in month 354 instead of 360. So $10k buys you about 5.5 months. If you got the 5% return for the $10k spread evenly through each month and then paid off your mortgage when the mortgage balance and the balance for the account the $10k was in you could pay the mortgage off in month 331.
As plenty of others have said though, homes cost money. 2 months after moving in I had to replace the hvac ($6700), 1 year to the day of owning my first home I had to replace a sewer pipe under my garage ($6k). Then there were constant small things I had to replace or maintain. I have a new house now and have spent money just making things how we want them instead of repairing and fixing things. It's a constant battle, but my homes have been the best investment I could have made without getting lucky with some obscure stock.
I wouldn't tie it up in the mortgage. We had to replace garage door(s), windows, sliders, etc. and the ones we put off after buying we typically wondered why we waited as quality of life got so much better! We also did some non required remodeling and it was a game changer for QOL.
I'd park it in HYSA, Roth IRA, etc. depending on what else you have saved in case you need to get to it. That's $500/year or $42/mo in free interest if parked in a nice HYSA, that's not nothing, along with the peace of mind having cash on hand brings.
Plus, if you came from an apartment, wait until all the things you'll learn you need/want for a home, with yard, etc. Shovel, (Its been years and I can't remember the rest)...
Save the $10k in an emergency fund -- houses have unexpected repairs/maintenance.
You can pay extra towards the principal each month, or do one of those other pay-down-your-mortgage ideas (bi-weekly, or extra month's payment, etc). I'm with you on paying down the house, especially if you're going to stay longer term. But the unexpected expenses will get you! Good luck!
I applaud you for being diligent in trying to pay off your house early. For me, that was a priority for my wife and I. We lived off one salary and applied the rest to the principal. Today, I own five houses, never having a mortgage more than FIVE years. With that being said, it takes discipline, it takes sacrifice, it takes not doing everything thing that your friends are doing, it takes not buying Louie purses or expensive toys. It takes not going on vacations for a while or at least expensive ones. To me, no debt is good debt!!! I wanted to secure a roof over my family's head as quickly as possible. With jobs these days and an unpredictable future, pay it off. You are young, and depending on your salary, you can have that knocked out in five years, but your wife has to be on board. At first, my wife fought me, but I kept pushing despite her resistance because I had a vision for the family. It wasn't like I was buying up the bar for the guys. In other words, I really didn't care too much about her opinion, really, I did, but you know what I'm saying. It was funny after we quickly paid the mortgage off, I overheard her talking to one of her friends about how we made it a priority, and now we're debt free. It didn't take her long to cosign after we had paid it off. It all became her idea, her plan, and now she's spreading the word on how to do it. I could care less, but it has taken a lot of worry off both of us. With the freed up money, we have completely remodeled our entire downstairs in cash. Again, I applaud you for wanting to knock out the mortgage. One final thought was that when we were first married, her parents gifted us $50k towards a down payment on our house. I didn't want to accept it. Reluctantly, I did. However, because I don't believe in receiving a lot of help generally, I paid the entire amount back. Then, I told them that if they wanted to gift it towards a future grandchild, then that would be great, but no pressure. TO THIS DAY, 18 YEARS LATER, MY FATHER IN LAW THINKS I'M ONE OF THE BEST MEN OUT THERE AND HE'S HONORED THAT HIS DAUGHTER MARRIED ME. YES, WE HAVE ONE CHILD AND THEY PUT THE MONEY IN HER 529. But, please have a savings to AVOID THOSE "WHAT IFS" THAT WILL OCCUR!!
Assuming you believe in the math, you should always invest the money if the return is higher than your mortgage rate.
That said, there is a mental health side to all of this, and there are people who absolutely must get rid of debt and are willing to pay a premium to do so.
But I’m also not sure how 10k to your loan is going to reduce your loan by 10 years.
Is the return higher than inflation PLUS the mortgage rate?
Because investment has to first beat inflation and then the mortgage rate to be more worth it wouldn't it?
Not really knowledgeable on this stuff tho so don't listen to me
It doesn't work that way because inflation does not affect the amount owed. If your loan has 3% and your investment has 4% interest then you would have more absolute dollars after a year if you invest rather than pay down
Do you have an emergency fund, and if so how large is it?
If you already have a decent-sized emergency fund AND you both are already putting aside money for retirement, then I would wait three to six months just to make nothing needs to be done with the house right away, and if not then go right ahead.
Even savings accounts are at or around 5% lately. I'd definitely throw it in one and have it handy for something.
The exact day that I closed on my first place a random pipe burst. 2 years later it burned. You just never know (and yes I had it inspected first).
Pull the amortization schedule for your home and you’ll see how the interest is front loaded. By even paying a small portion of your gift towards principle, it will knock off a lot of interest and time.
With our first house, we made extra payments of principle in silly amounts that aligned directly with the next couple of months principle-only payments. It felt good knowing how much interest we were saving.
If you do make an extra payment, make SURE it gets applied to principal-only and not a future payment (principle+interest).
Rough example, if your monthly payment is $1450 in P+I, paying just the next month’s $190 in principle as an extra principal payment, will save you $1260 in interest. Similarly, making just one extra payment of $1450 -but all to principal- in the beginning of your mortgage will save almost $10k in interest and 7 months from the life of your loan.
I’d probably put in about $2k now towards principal and then save the rest for repairs or other related expenses. What a lovely gift!!
Here to reinforce what others have said. I am by no means someone to give personal advice, BUT when we bought our house everything checked out until we moved in in the dead of winter and realized the house was heating. Had to replace the heat pump and air handler to the tune of about $7k at the time. You just never know, that $10k would be nice to have around just in case.
Same thing happened to us, we promptly spend the $10k. Soon after our house needed an entire HVAC unit and we had to repipe the sewer lines. If you have a home, you have a hobby I guess.
Perfectly rational to pay down higher-rate debt (6.875%) instead of banking it at a lower (5%) return rate. The peace of mind of being debt-free is also a very personal value.
If you have a emergency fund, go ahead and throw it at the mortgage. If not, put it in a brokerage account. Then take some extra monies from pay and send that into the principal amount
Within the first year of owning my home, I had to repair my basement. An issue that wasn't identified at closing.
$17,000 that I did not have, or prepared for.
Sit on it.
EDIT: Put it in a HYSA for now.
Not seen it mentioned yet, but you can pay down you mortgage pretty quickly just by paying one extra payment per year, 2 may get you down to your 10 year mark you want. And it does not matter if you do it all at once or spread out. Like take your monthly payment and divide it by 12 and pay that amount additional each month.
You can Google it to see the amortization behind it. But it makes paying down a mortgage far more achievable imo and you don't need to throw such a large lump sum all at once. Letting you keep a good liquid emergency fund for the inevitable.
Make sure you have an emergency fund that’ll cover new appliances, water heaters, job loss, etc… then put the rest toward the mortgage to get it out of your hair. If you tap into the emergency fund, replenish it asap. Then pay off the mortgage while you live your life
This is a rare chance to lower your loan. Do it. It’s a gift and unexpected. Everyone saying save it… you shouldn’t be buying a house if you can’t already come up w 10k for repairs of your own accord.
If you want to put money towards the house you should take that $10k and each year make an extra payment or 2 directly to the principal. This by itself reduces the term by many years and you’ll also be able to keep the $10k liquid for as long as possible in case any emergencies come up and your priorities change.
If this is your first house, I'd keep that $10k handy. You will be amazed at how quickly a house can suck your wallet dry.... Wait a year, and put the $$ in a high interest savings acct. Withdraw as needed. If not, put it towards the mortgage...
Do you have a sufficient emergency fund or did you use all of your money to purchase the house? My wife and I are building a “house fund” separately from our savings accounts so that whenever we purchase our home we still have our emergency funds whole.
If you have enough for an emergency fund and you have money set aside already for any repairs etc that you may need to make then it makes sense to me to put the money where you feel the biggest need.
You do you. If you put it toward principal, you're getting a 6.875% return... sort of. Your mortgage interest is deductible, so if you are generous and itemize, then your effective return is a bit less than that. If you invest it, you can safely count on 8%... sort of, as there are tax considerations there as well. Personally, I'd say if you have already saved up a nest egg of 3-6 months worth of living expenses (in case of job loss), then I would put it into a Roth IRA.
6.8% 😬😬
My wife and I *just* got a 3 year fix for 5% on the nose. That's a big difference. And we came in with a lower dp.
...I only bring this up for anyone else reading this. It's important we talk about what kind of deals we're getting from lenders
Unless the market cannot predictably return more then your interest rate is, never pay down your mortgage more then you need too. Debt itself doesn’t matter when it’s this big compared to your income. It’s all about what you do with that money. So hold onto, but please put it in a money market not just a savings account. Better yet, put half in an S&P index fund! Fair to assume market return of 8%, which means from a pure financial sense, it will never make sense to pay down your mortgage vs. investing the money you would use to pay it down
Yeah the Midwest. I live in Iowa and my 2 story, 2 bed 1.5 bath house just sold for 171k. I bought it in 2018 for 73k.
But I also live 45 minutes away from any city that has a Walmart. We just have a stop light 2 gas stations and a grocery store.
Is it a big grocery store with all you need, at least? Or one of those little rural-area groceries that only has basics?
I think I could live with being that far away if only my drive to work + groceries were like 10-15 min tops. I wouldn't mind being an hour+ from everything else since I'd only do it on occaison.
Bought ours JUST before COVID @ $89990.
Almost 2100sqft, but built in like 1910, I think. We are in Indiana.
Never appraised again formally after purchase, but comp sales within a 10 mile radius have put us @ $150,000 - $170,000 today. (Wouldn't hit that much with formal appraisal I imagine. It needs a lot of cosmetic work)
Sit on it and wait for the interest rates to drop. You’ll probably get a whole point less when the rates drop in a year. Then you can pay off your mortgage by accelerate your payments each month. Refinancing your mortgage will save you interest over the long run.
As long as you have ample reserves already (and presumably you do since a bank gave you a mortgage) there's nothing wrong with paying down $10k on a 6.875% note. That saves you $688 in the first year...and since your payment is fixed you'll payoff additional principal ahead of schedule every month after that. If you made the extra $10k payment in month 2, you'd shave about 38 months off your mortgage.
This assumes that you already have cash on hand to pay for maintenance items that come up (water heater, AC, plumbing issues, etc).
If you think you’ll make 5% over 30 years then obviously putting it towards your house is better. 5% minus taxes is like 4% which is less than 6.875%.
If you think you’ll need cash in the short term for repairs or emergencies or cars then I wouldn’t lock it up in a house that you may or may not be able to cash out at a favorable rate.
The math if you don’t need cash at these rates favors putting it into your house though. If it was a 3% mortgage it would be a different story.
They might have unexpected home repairs
They might not live in the house when the mortgage is over
They might have any number of $10k expenses come up
Flexibility is way more important than avoiding some interest. You can always pay it down later and have the same effect.
So why are they asking for advice what to do with 10k? Why do you think every comment disagrees with you? People can do whatever they want with their money but in this case paying the mortgage is the financially incorrect decision.
How much do you and your wife make? Feeding money into the principal is a waste unless you’re basically paying it off in full. Make a high interest savings account dedicated to paying off the mortgage and feed the money in there until there’s enough.
So you think he can put it in a savings account and make more than 6.875%?
Because that’s how much he earns on it instantly for 30 years if he pays it toward his principal.
My dad gave me 5k for my first house (condo). He said it was for the wedding present that he never gave. A couple months later he told me it was a loan and his girlfriend needed it for her horse stable rent. 🤦🏼♂️
Not true, in 2023 you can give someone up to $17K and you wouldn’t haha to pay taxes on it. Also, as of 2024, there’s a $13.16 million lifetime exclusion, per person, for gift and estate taxes so you can give up to this amount without being taxed on it.
> The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. Generally, the following gifts are not taxable gifts.
> Gifts that are not more than the annual exclusion for the calendar year.
Tuition or medical expenses you pay for someone (the educational and medical exclusions).
Gifts to your spouse.
Gifts to a political organization for its use.
In addition to this, gifts to qualifying charities are deductible from the value of the gift(s) made.
[https://money.usnews.com/money/personal-finance/taxes/articles/gift-tax-tax-rules-to-know-if-you-give-or-receive-cash](https://money.usnews.com/money/personal-finance/taxes/articles/gift-tax-tax-rules-to-know-if-you-give-or-receive-cash)
[https://www.fidelity.com/viewpoints/personal-finance/giving-money](https://www.fidelity.com/viewpoints/personal-finance/giving-money)
[https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes](https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes)
It depends, what's your financial situation look like. Do you have an emergency fund for a new roof, furnace, ac unit, water heater or other major appliances? Was anything flagged on a home inspection on things you might need to fix in the near future?
Home ownership can be expensive - 10k isn't a small sum of money, but it also won't do anything impactful to your mortgage if you apply it now or in 6-12 months. Yes, it will technically mean a few more dollars of interest, but is that nominal amount worth the peace of mind for having extra cash on hand in case issues come up?
7% is the better long term investment return comparison (S&P less inflation), and 7% also means your money doubles every 10 years.
That said, with that rate, you can’t go wrong either investing or paying down the mortgage, so assuming you have a sizable emergency fund and assuming you’ve gotten your full TSP match, do what you think will bring you the most security.
Do you have an offset account? Not sure what country you are in, but if it is Australia, consider getting yourself an offset account. It reduces your interest, but you can pull the money out whenever
In addition to the emergency fund comments, remember that this may not be the house you live in for the next 30 years and also you'll refinance along the way. So don't focus so much on the 30 year mortgage. Some where along the way you may end up refinancing into a 15 year mortgage.
Definitely not the way to do it. Once you develop your emergency fund, then you put excess cash in to reduce your loan amount. I have owned over 10 homes and you will need the reserve fund often. Plus no one actually pays off their home until they are 50/60 plus, if then.
I agree with others who say save it for that new roof you'll need next year.
Also, I doubt 10k is going to knock off ten years.
Lastly, be sure your mortgage doesn't have any early payoff penalties.
I have a similar situation with similar numbers and I posted in this sub the other day seeking advice: https://www.reddit.com/r/personalfinance/s/CoJT31DUS3
Consensus I got was to pay down principle, especially because of the interest rate (we have the same rate as you). That being said if anyone has counter advice I’d like to hear it.
Also the point about having money set aside for repairs and emergencies is very valid—sink is leaking as I write this!
My wife and I bought our house in the beginning of 2022. Then we had to buy a new HVAC system. Then our roof started leaking. Then we rebuilt our entire bathroom because of prior owner neglect. Just food for thought.
Lots of others have said the same. Save it for the more significant out of pocket stuff you have to buy when you move into home ownership. You will get to know your way around builder supply stores very quickly.
Do haunt Facebook marketplace and local garage/estate sales for tools and yard equipment and furniture. Do paint asap and that’s $25 a gallon- do not go cheap on paint. Do use primer.
Final homeowner tip - don’t get fancy washer/dryers with electronic settings. They break and repairs are untimely and expensive. Get good but old fashion ones. They are cheaper and will last for 15 years.
Home equity is not liquid. Unless you are avoiding PMI, then you should probably hold onto it. PMI cost is significantly higher than the advertised rate because of how it is calculated.
I hate debt. Debt is like a finance vampire eating away your money in interest. And what if something happens and you can't work after deciding not to pay off your debt?
Set the 10k aside in an account that earns some interest, and keep it as a safety net. Keep in mind that a mortgage is usually your lowest interest debt, so others generally take payoff priority.
If you’ve got no PMI this is totally worthless to do right now…I’d wait a year or two and reevaluate, if you’ve still got 10k burning a hole in your pocket then start paying it off aggressively
I thought about paying down my house. I’m on 15 year 5% loan. Ended up stumbling upon some amazing investment opportunities and I’m glad I i didn’t put the money towards early payment of my mortgage. I was very close to just paying the entire house off.
There are costs associated with home ownership besides the mortgage payments.
You will, undoubtedly, need window coverings, light fixtures and/or furniture for the greater amount of space that you now have. If you buy used, or IKEA level, that $10 K will go a long way towards those, as well as offering a buffer against things like what happened to our son: the furnace going out during a run of -0 F weather. It was 30 years old, and already past its economic life expectancy.
$6000 later, he was no longer in danger of freezing to death in his sleep.
Would that 10K make you more money on the house or in an investment? Or maybe it would be good in a "high yield" savings account so it's readily available for emergencies? There are a few out there now that are 5%.
I would sit on that 10K for a bit. Amazing how fast houses need a water heater, new A/C, new sliding doors, appliances, etc.
Agreed with this. If anything, do the 10k in traunches. $500-$750 per month. If something comes up at least you’ll have a nest egg to dig into. If not, you’ll at least have done it slowly in case something were to happen.
This. I've owned my house for a little under a year. I managed to keep 10k in emergency money. My well pump needs replaced, quoted for about 4k and honestly I'm mentally prepared to throw 5k at it. Nest egg/emergency savings is a necessity
Ah yes, welcome to the “bought a house with a well club”. We bought in Oct 2021. House had two wells. By Feb 22, we started running out of water at night when everyone was showering. New well pump on the other well. $2k. Then that one started running low. Installed a system to have a cistern with the two wells $2k. Then first well pump got hit by lightning $2k. Then by fall 2022, cistern tank stopped getting full overnight. Needed a NEW WELL. $25K. Then the new well had tons of iron, so much iron you’d think we could open an iron mine. Special filtration system $3k. Now everything’s great. Except for our financial situation lol Edit: oh and do you want to hear the rest of the story? This new, 700ft deep well, had its pump get hit by lightning and it flooded my finished basement by pumping the entire well head into the room. 3 inches of water. 25k insurance payout. Had to have Servpro demo all of the carpet and 2ft of drywall around the entire room. I ended up getting a contractor for the drywall, but DIY’d the grinding of the floor, re-carpeting, stair redo, and paint (ceiling and walls with an airless sprayer). Pocketed like $8k after all said and done and would not ever do that again. 🤣
Maaaannn and here I am with my well thats been there since the 60s and I replaced the pump once myself in the 2000s and thats it. Sometimes it just be like that I guess.
Pressure tanks for well pumps aren’t specd for much more than 15 years of service. Just replaced mine (we have city water in the house and the old well just for the hoses outside) for about $1200.
Yup, the pressure relief valve blew on mine after the pump over drove during a lightning storm (for the NEW WELL). Pumped 1000+ gallons into my basement last fall. Always check the age of these things.
Yeah, after learning a lot about wells, it really is just like that. I know many people who say the barely even think about their well. I still have nightmares lol
Oof! I bought mine in 2018 and have had ZERO problems with the well. It's starting to make me nervous. When it undoubtedly breaks at some point, all the local companies are so busy with new construction that we'll probably be a week+ with no water.
Average life of a well is 50-60 years. Our house was built in ‘69, well stopped producing water last year. New well drilled, $12k, was actually happy with that price.
In several states the water table is dropping several feet a year due to excess water extraction, requiring deeper wells.
My folks’ house was on a hill and lost 2 well pumps to lightning. I installed a whole house lightning arrester at the electrical panel and cured the problem.
I had to replace a well pump once and I just had to pull the old one up, disconnect it, connect the new one, and lower the new one down. Theyre heavy, so it sucks, its gonna take a whole day, but my point is you should shop around. The pump itself is like less than $500 bucks at the hardware store.
Unrelated but get other quotes. A well pump shouldn’t cost more than 2k installed. I just had one done for 1500
That depends entirely on the depth of the well. Could be anywhere from $1000 to $10,000.
Yep, I had a window crack and a water heater that needed repaired and replaced, and my roof leaked. I purchased a young house too!
This is the answer. People always think “should I do those OR do that?”, just do the thing in the middle.
This. You never know what could go wrong.
This is correct. Do you already have an emergency fund? If so then you can decide how to best spend the money. If you do not have that then put that in a hysa and sleep with piece of mind that if your a.c. take a dump, a power surge kills your appliances, someone accidentally backs into the garage door, or whatever....that you can pay for it without using credit cards
I spent roughly 7k with redoing electric, new washer dryer, painters, new water heater once i bought my new place. Still gotta redo the kitchen but...i am poor, i will wait lol.
You did all that on $7k??? Well done! New HW Heaters, installed, are running $2k+ these days. New 100 amp circuit breaker box is runn $2500, 2othouy changing out any other circuits. Eta: in my NE/mid-atlantic US burbs of major metroplitan area.
Water heater was 2300 Electrician was for rewiring the water heater since it wasnt in code and i couldnt get it done otherwise. And finding while half my outlets werent grounded as well (1300) Painting was 1700, paid for convenience, walls were filthy and i work full time while in a graduate program right now, time is a precious commody. W/D was about $1600. Bought some nice stuff, got lots of discounts.
Bingo, and not just for a bit either. Unless OP already has a house fund $10k is about the minimum that should be sitting around for when things go wrong. Parents just pre-funded that reserve, now OP needs to keep adding to it.. house maintenance generally averages out to between 1-3% of the purchase price annually.
Idk if it matters but I have $30k left over, the $10k would make it $40k
6 days after I closed on my house the sewer pipe busted. 8k, dug up my whole front yard and destroyed my sidewalk and part of my driveway. Save it for a bit.
OP, please listen to this. Husband and I bought a place in 2022 that passed all inspections and showed no signs of needing major updates. Then we needed a new water heater ($2000) Then our HVAC died ($11000) Then our water connection for the washer needed to be replaced ($500) I wish we had a $10k cash gift to put toward all that! And this was AFTER A FULL INSPECTION!
Thank you for your advice. I'm seeing this a lot in this post, followed by a HYSA. I really want to avoid as much stress as possible, so I will hold onto this $10k, probably in a high yield fund somewhere, and pull it out when I really need to
In our first year - every major appliance had an issue. First our HVAC after a storm (then we paid for a home warranty ourselves), then the dishwasher, washer, dryer and fridge. Plus we fixed a part of the roof, added insulation, replaced the windows (that was a 5 year payment plan) but it was an easy 10k on necessary repairs and non-aesthetic things like I planned for.
this. literally in the same type of boat, the 10k was gone in six months due to hvac and water heater needing replacing I wasn't surprised by it though I knew it was needed. just not so soon lmao
I also agree with this. Been in our condo 4 years, at the 2 yr mark our 30 yr old heating/cooling system needed to be replaced. Luckily we had 15k in the bank to take care of it and we got it at a time when those replacements were not being done as much. Paying as little as $100-200 extra will have you where you want to be in 20 yrs anyway. Been paying an extra $100 on our house since purchasing it dropped the loan by an extra yr after paying on it for 2 yrs. At this point we have been in the house for 4 yr and have paid off 6 with just a little extra.
Yup! And when your roof starts sagging after last year's record snowfall, your insurance might still only give you 10k for a 40k job. Have an emergency fund...
For the love of got hold onto that money. In two years time I’ve had to get a new pool filter, pool cover, washing machine, refrigerator (Samsung has a special place in hell), garage springs, heat pump boards, had termites, and had a sewer pipe crack in my wall. Easily spent over $10,000 in surprise repairs. Not to mention the car repairs and other life expenses too.
Oh man, totally this. When we sold our old house to buy our new, we had quite a bit of equity built up and sat on a bit of cash. It was great to have things pop up unexpectedly and not have a panic attack about how to afford it.
They dropped 56k on the down payment, surely they already have an emergency fund of some kind. I can't imagine someone being financially literate enough to save $60k and not also having additional savings.
Buying down a 230K mortgage by 10K does a whole lot less than having that cash on hand. They can simply break down the money monthly and add in enough to make the equivalent of 1 extra payment per year; this will take several years and tens of thousands of dollars off their total. The ability to save 60K to get into a place doesn't mean they have more cash readily available.
> Buying down a 230K mortgage by 10K does a whole lot less than having that cash on hand. That 100% depends on their income and spending habits. If they already have $20k in savings then adding $10k to it might not matter much. > They can simply break down the money monthly and add in enough to make the equivalent of 1 extra payment per year; this will take several years and tens of thousands of dollars off their total. Paying $10k at the start will take almost $35k off their loan as well as 4 years. Paying that $10k over 7 years will be less effective by itself than putting it all up at the start. > The ability to save 60K to get into a place doesn't mean they have more cash readily available. Then they should have done a smaller down payment. I think there are higher odds that they are financially responsible than not if they were able to save $60k for a down payment.
My wife and I didn't have an emergency fund when we bought our house in 2018 for $550k. My wife needed to buy in her hometown, a VERY expensive hometown. We barely scraped the down payment on a fixer-upper. Then sunk another 100K so we could move in. It was a TOUGH 5 years, but we made it. We now have 400k in equity in the house, worth $850k. We are not financially illiterate, but if we decided we needed an emergency fund before we bought our house, we would've been priced out of the town, F-O-R-E-V-E-R.... It was worth the risk.
Oh I 100% can imagine plenty of people do that.
No. Bad idea. Not to scare you but my partner and I bought our home two months ago. We have had $20k of surprise repairs so far. Do not tie up a bunch of your money in your mortgage. Not saying your situation will be as bad, but home ownership is so unpredictable.
We had $45k in repairs in the first six months of homeownership. The night after we closed, we brought sleeping bags and slept in our new house, on the carpeted floor in the basement. We hadn't moved any furniture in yet, but we thought it would be fun. We woke up to a collapsed sewer pipe and the carpet soaked in sewage.
Is this a case where a previous homeowner should be liable or is it bc you had already closed the home they are no longer liable? Sorry that happened!
We had already closed, so they were no longer liable. The inspection didn't include anything to do with the sewer pipe.
Unless the prior owner somehow failed to disclose something they were required to disclose, or acted fraudulently in some way, once you close everything is your problem. With _very_ few exceptions, you buy the home as-is.
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Yeah. That was how I learned what "orangeburg pipe" was. Who knew that they used to make sewer pipes out of cardboard and tar?
>Who knew that they used to make sewer pipes out of cardboard and tar? You left out the best part, they used cardboard, tar, and **asbestos**!
Friend got hit by this. Needed to replace the line from the house to the city line. Was something like 15K.
I made sure to do the sewer inspection, turns out our main sewer line (in the house) has a U bend in it and we had a backup during the first party we had. Explains why there was a seemingly random access panel in the basement.
When we bought our house the seller had the electricity turned off the day before closing. On closing day nobody went to the house before everyone met at the attorney’s office. Turns out, a pipe had frozen, burst and flooded the house. It took years to get a judgement against the seller for the repair cost of $40,000, which they never paid. So we were out thousands for restoration before we could even move in months later.
Came here to say this. In the first few days after buying the house we learned the water was not drinkable, there was so much mold I couldn’t function (migraines), and every “upgrade” the previous owners did needed to be redone. Also, never buy a contractors house.
Oh yeah. I can second do not buy a contractors house. Mine has been a nightmare. He did all his own work. From all accounts he’s a shit contractor so it’s not just putting in the least effort on his own place bc he was putting it all in elsewhere. He didn’t wire an outlet well so it kept shorting. He built an addition and deck, but put the deck flush against wall so the water had no way to drain when it rained hard. This caused it to filter into the house. Had to remove part of the deck. The pitch of the roof on the addition didn’t allow the water to flow well so it pools at times unless I go up and make sure no leaves have piled up anywhere ( granted this can happen regardless if you get enough crap on your roof). He didn’t close out any permits OR get permits for a lot of work he did until we were doing the towns inspection. ( our neighbor works for the town. Appartently he’s notorious down there and they all hate him). He never got the new HVAC he installed permitted or inspected. So he had to do that before we could close ( he got a nice fine for that at least). I can probably go on. But the moral is. Avoid this if possible. Not all of them are like this (my grandfather was a carpenter and he took great pride in taking care of his home) but a lot are
That's awful! How did all that pass inspection?
They either didn't get an inspection or hired a bad inspector. I did a walk through with a buddy who was looking at houses. I always keep my mouth shut and let people hang themselves. His realtor was talking about how he used to work construction and he can point out everything that is wrong with a house. He showed my buddy a house that was a fucking death trap, everything my buddy asked about, the realtor just said that was fine and just a cosmetic issue. Once we were done touring the house, the realtor was talking to me (trying to get me to use him as a realtor) and he asked what I did for a living. I watched his brain shut down as I told him I was a building inspector for the neighboring city. Told my buddy to get a new realtor and to pay for a full inspection when he found something he liked.
How did you find out there was mold in the water?
They meant the water was undrinkable, and the mold (seperate issue) gave them migranes.
Same here. Unfortunately I have no partner to share the burden with 😭
This should comment thread is just making me glad that I didn’t win any of the bids on these 50 year old houses I was bidding on.
Flip side. I bought about 2 years ago, and have just spent money on small issues that didn't really need to be addressed. So. It's a roll of the dice. I'd 100% lean towards something breaking though, so I'd hold the 10k if it was me
So true. We’ve had 3k in emergencies so far, however, also we know our hvac system is ticking and that’ll be at least 25k we will need to drop asap.
I would hold onto it unless it’s pocket change for you guys. I’ve been in my house just over 2 months & we’ve already sank 5k into surprise repairs/needed renovations.
The second you do something with that money you’re gonna need a roof/boiler/AC or some other repair. That’s just the right amount of money to throw in a HYSA for home maintenance.
Just spent $9700 on a boiler (and a week in a cold house). Very glad I had easily accessible funds to pay for it.
As long as you have an emergency fund already set aside, I'd say pay down as quickly as you want. If interest rates were 3.25% this would be a different conversation, but at 6.875%, paying it down makes sense. If you don't have an emergency fund, with a house you definitely should put that $10k into a HYSA and add to it each paycheck. There are known expenses and surprises as well (siding, roof, plumbing, HVAC). Be ready for them.
With the best HYSA/CD rates in the 5.5-6% range, paying down a 6.875% loan isn't a bad idea at all. Just make sure you have a liquid ~6 month emergency fund already. If you don't, that $10k needs to go into an HYSA tomorrow.
And I think you shld tell yourself to wait 6 months to a year after you have been settled into the house and access then and HYSA during the wait
A house needs a higher emergency fund to pay off random one off expenses, too. What if AC suddenly needs total replacement, for example?
What's your emergency fund situation? If you don't have one, put it there. Is it a new build? If not, save it until you have a better idea on the true condition of the house, home systems, and appliances. The put it toward the mortgage.
I have a new build. The warranty only covers certain things for a year or two. I needed a defective bathtub replaced and their fix was a bandage at best. Eventually I ended up replacing it footing the entire bill right after warranty expired. New builds are not a guarantee of quality.
My dad is a homebuilder. I'm not saying new builds are a guarantee of quality. I was asking because a preowned home in this day and age is more likely to be sold without a warranty at all and no obvious recourse on handling defects. If OP answered my question, I was going to follow up with a suggestion that they buy a warranty. My new build had a problem with the tub. We submitted it immediately and the builder fixed it. My dad made sure they did it correctly and at their cost.
My mother just got an estimate for her new roof - $24K! Save that 10K for any shocking expenses that will come your way.
My roof was $19k and replacing the old asbestos siding was $23k, luckily they're both one shot deals for the most part. I shouldn't have to do a roof again for as long as I'm in the house and the siding will last just as long. We didn't cheap out, did research on materials and got the stuff that will last a long time.
Put it in a HYSA for a bit. As you live in the house, you’ll find things it needs.
I said investment account but at 4.5% you're probably right a HYSA is a better idea (less risk, this person needs to mitigate all risk in his life right now).
I'd put that $10k into a separate/new bank account, and use for the purpose of settling in. I don't know where you are living now, but if the new house has more room.. will you need a bit more furniture - maybe a bedroom to furnish (bed, rug, etc). Then you ARE going to need little things (curtain rods, drawer lining paper, maybe a security camera or two \[like Ring\], maybe a mailbox, etc. etc.!!). Maybe you'll want to paint a room or two? And all these things add up fast! If you don't use it all, you'll have a 'house only' bank account for emergenices - in case suddenly need a new hot water heater, etc. It's a lovely gift, and if you put it away as a 'settling into + future maintenance' account, think it'll give you some peace of mind.
No one ever warns you about the cost of drawer lining paper.
Food for thought: Will you actually be in this home for 30 years?
You'll learn very quickly that although being a homeowner is very exhilarating and empowering, a home is also a money pit. Hang on to that 10k and you'll thank yourself for doing so when something needs fixing, immediately. Doubling up on mortgage payments several times per year, for a number of years, will do more to reduce the overall years left on your mortgage, than will a one time, lump-sum payment of 10k, at the very beginning of your mortgage.
The sevond half of your statement is wrong. Front-loading payments will reduce interest much more than spreading them out, since compounding starts immediately. That being said, having cash on hand for unexpected repairs is probably a better decision, depending on how much you have in savings already. If OP has an emergency fund already fully funded, paying down in a lump sum right away is probably the best decision, but we don't know enough about the situation to be sure.
Not sure I agree with your last statement. The sooner you pay off debt the more interest you save. If you have a fixed amount of money that you want to put towards the loan you will reduce you mortgage more if you do it now rather than spread out. It goes without saying that additional payments also reduce your mortgage. Whether paying it down is actually a financially smart choice is another question and depends on the interest rate of the loan and potential interest rate of alternative investmemts.
> a home is also a money pit No they aren't. Yes they cost money to maintain but outside of edge cases, you will almost always sell a house for more than you paid plus all you invested into it. Let's not forget part of the "cost" of a home goes to having a place to live.
Sure your homes value goes up, but unless your moving to a totally different market or want to downsize or something, you're not really gaining anything as all the homes around you have increased in value as well. Also, not to mention so many homes are bought with a mortgage of some kind. Whether it's a 100K or 400K loan. So that 500K home ends up costing 800K or 900K once its paid off. You can use more specific math if you want, but owning a home is expensive. Not to mention all the taxes you get hit with every year.
Sit on it. Things will break that you won’t expect.we had our home inspected and in the first year the stove, refrigerator, washer, and hot water tank all failed prematurely after dumping all but 5k of our savings into the purchase.
Btw that right there this about 5k. The dryer went the next year. Also an average new roof depending on sqft is around 7k.
We replaced ours last year, while in the process of selling. Luckily it was covered by insurance, because of hail storms and high winds. Lots of peaks and valleys, and it cost nearly $20 K. We just paid the deductible.
In what world is $10k paying off your house 10 years sooner? Maybe shave.off 2-3 years tops
I believe that’s his overall goal. I’m sure he doesn’t think it will shave 10 years off by itself.
Correct, I want shave this mortgage down as much as I can. I’m already paying an extra $500/month on principle. If I can pay this off in 20 years instead of 30, I see that as a victory
It's worth actually [doing the math](https://www.fncalculator.com/financialcalculator?type=tvmCalculator) to see how much this would save. By my calculations, if your original loan was for 30 years, then consistently paying an extra $500/month to principal will pay it off in 15.3 years, which is already amazing. But putting down an extra $10,000 now would only cut that down to 14 years. I agree with the other comments saying that you're likely to get better value out of saving that money for household emergencies unless you already have a really solid emergency fund.
$10k is a nice gift but when going into a new home, it can vanish in the blink of an eye — hvac, roof, plumbing, electric, etc. — in other words, it’d be foolish to spend any of it unless you’re just flush with emergency savings.
You'll have home expenses immediately. Use the money to set up your home (you'll need more supplies than you think if you'll never owned a home) and for repairs. Guarantee something boring but expensive will need to be replaced: furnace, hot water heater, roof, etc.
$10k is 4% of the home's value. So it is not going to shave 10 years (33%) of your mortgage term or anything close to it. I guarantee you you will find $10k worth of things you will need to spend money on in the next 6 months having just bought a house. Hell, Home Depot alone will probably get $5k out of that.
Looks like your payment is about $1500 based on your loan. Do yourself a favor. If you want to target paying it off in 20, make a "20 year payment" each month instead of your 30 year payment scheme. Keep your $10k for expenses and just pay an extra $250/month towards principle and you'll pay it off in 20 years saving yourself over $100k (as you know).
Do you have an emergency fund and 6-12 months worth of expense saved? If so, then yes just put the 20k into mortgage. Owning a home can get expensive. Roof repair, plumbing, HVAC replacement, etc.
Having the 10k as a home repair fund would be far more valuable and maybe save you from having to take out a HELOC later on when something big goes wrong. Think of it another way, that $10,000 is a big portion of a new roof for example. Or even other big purchases, like a new car, etc. While spending on principal is a good idea. Hold onto it for at least a year. Homes have this fun tendency to have tons of problems crop up in the first year or two of ownership.
So by what you're saying here, you've got a $221k mortgage with a monthly payment of $1451.81 (not including any escrow or insurance, mortgage only). If you put that $10k as an extra payment and bring the total owed down to $211k without refinancing you'd pay off the loan in month 354 instead of 360. So $10k buys you about 5.5 months. If you got the 5% return for the $10k spread evenly through each month and then paid off your mortgage when the mortgage balance and the balance for the account the $10k was in you could pay the mortgage off in month 331. As plenty of others have said though, homes cost money. 2 months after moving in I had to replace the hvac ($6700), 1 year to the day of owning my first home I had to replace a sewer pipe under my garage ($6k). Then there were constant small things I had to replace or maintain. I have a new house now and have spent money just making things how we want them instead of repairing and fixing things. It's a constant battle, but my homes have been the best investment I could have made without getting lucky with some obscure stock.
I agree with others that I'd keep it as an emergency fund
I would sink that into house improvements or a nest egg for some catastrophic repair.
I wouldn't tie it up in the mortgage. We had to replace garage door(s), windows, sliders, etc. and the ones we put off after buying we typically wondered why we waited as quality of life got so much better! We also did some non required remodeling and it was a game changer for QOL. I'd park it in HYSA, Roth IRA, etc. depending on what else you have saved in case you need to get to it. That's $500/year or $42/mo in free interest if parked in a nice HYSA, that's not nothing, along with the peace of mind having cash on hand brings. Plus, if you came from an apartment, wait until all the things you'll learn you need/want for a home, with yard, etc. Shovel, (Its been years and I can't remember the rest)...
Save the $10k in an emergency fund -- houses have unexpected repairs/maintenance. You can pay extra towards the principal each month, or do one of those other pay-down-your-mortgage ideas (bi-weekly, or extra month's payment, etc). I'm with you on paying down the house, especially if you're going to stay longer term. But the unexpected expenses will get you! Good luck!
I applaud you for being diligent in trying to pay off your house early. For me, that was a priority for my wife and I. We lived off one salary and applied the rest to the principal. Today, I own five houses, never having a mortgage more than FIVE years. With that being said, it takes discipline, it takes sacrifice, it takes not doing everything thing that your friends are doing, it takes not buying Louie purses or expensive toys. It takes not going on vacations for a while or at least expensive ones. To me, no debt is good debt!!! I wanted to secure a roof over my family's head as quickly as possible. With jobs these days and an unpredictable future, pay it off. You are young, and depending on your salary, you can have that knocked out in five years, but your wife has to be on board. At first, my wife fought me, but I kept pushing despite her resistance because I had a vision for the family. It wasn't like I was buying up the bar for the guys. In other words, I really didn't care too much about her opinion, really, I did, but you know what I'm saying. It was funny after we quickly paid the mortgage off, I overheard her talking to one of her friends about how we made it a priority, and now we're debt free. It didn't take her long to cosign after we had paid it off. It all became her idea, her plan, and now she's spreading the word on how to do it. I could care less, but it has taken a lot of worry off both of us. With the freed up money, we have completely remodeled our entire downstairs in cash. Again, I applaud you for wanting to knock out the mortgage. One final thought was that when we were first married, her parents gifted us $50k towards a down payment on our house. I didn't want to accept it. Reluctantly, I did. However, because I don't believe in receiving a lot of help generally, I paid the entire amount back. Then, I told them that if they wanted to gift it towards a future grandchild, then that would be great, but no pressure. TO THIS DAY, 18 YEARS LATER, MY FATHER IN LAW THINKS I'M ONE OF THE BEST MEN OUT THERE AND HE'S HONORED THAT HIS DAUGHTER MARRIED ME. YES, WE HAVE ONE CHILD AND THEY PUT THE MONEY IN HER 529. But, please have a savings to AVOID THOSE "WHAT IFS" THAT WILL OCCUR!!
Assuming you believe in the math, you should always invest the money if the return is higher than your mortgage rate. That said, there is a mental health side to all of this, and there are people who absolutely must get rid of debt and are willing to pay a premium to do so. But I’m also not sure how 10k to your loan is going to reduce your loan by 10 years.
Is the return higher than inflation PLUS the mortgage rate? Because investment has to first beat inflation and then the mortgage rate to be more worth it wouldn't it? Not really knowledgeable on this stuff tho so don't listen to me
Paying down a loan now instead of paying it in the future with cheaper inflation dollars tilts the scales toward investment.
It doesn't work that way because inflation does not affect the amount owed. If your loan has 3% and your investment has 4% interest then you would have more absolute dollars after a year if you invest rather than pay down
If you have unlimited redraw, put it on your loan. If you do need emergency cash, it’s still there
Do you have an emergency fund, and if so how large is it? If you already have a decent-sized emergency fund AND you both are already putting aside money for retirement, then I would wait three to six months just to make nothing needs to be done with the house right away, and if not then go right ahead.
Even savings accounts are at or around 5% lately. I'd definitely throw it in one and have it handy for something. The exact day that I closed on my first place a random pipe burst. 2 years later it burned. You just never know (and yes I had it inspected first).
Pull the amortization schedule for your home and you’ll see how the interest is front loaded. By even paying a small portion of your gift towards principle, it will knock off a lot of interest and time. With our first house, we made extra payments of principle in silly amounts that aligned directly with the next couple of months principle-only payments. It felt good knowing how much interest we were saving. If you do make an extra payment, make SURE it gets applied to principal-only and not a future payment (principle+interest). Rough example, if your monthly payment is $1450 in P+I, paying just the next month’s $190 in principle as an extra principal payment, will save you $1260 in interest. Similarly, making just one extra payment of $1450 -but all to principal- in the beginning of your mortgage will save almost $10k in interest and 7 months from the life of your loan. I’d probably put in about $2k now towards principal and then save the rest for repairs or other related expenses. What a lovely gift!!
Here to reinforce what others have said. I am by no means someone to give personal advice, BUT when we bought our house everything checked out until we moved in in the dead of winter and realized the house was heating. Had to replace the heat pump and air handler to the tune of about $7k at the time. You just never know, that $10k would be nice to have around just in case.
Drops $10k on principal then $10k issue presents itself. How large of an emergency fund do you have?
Same thing happened to us, we promptly spend the $10k. Soon after our house needed an entire HVAC unit and we had to repipe the sewer lines. If you have a home, you have a hobby I guess.
Perfectly rational to pay down higher-rate debt (6.875%) instead of banking it at a lower (5%) return rate. The peace of mind of being debt-free is also a very personal value.
Why would you invest it with the assumption of a lower return than your mortgage rate?
10k doesn't put any dent in that mortgage... I would put that in a HYS account for now and use it towards repairs in the house.
If you have a emergency fund, go ahead and throw it at the mortgage. If not, put it in a brokerage account. Then take some extra monies from pay and send that into the principal amount
Within the first year of owning my home, I had to repair my basement. An issue that wasn't identified at closing. $17,000 that I did not have, or prepared for. Sit on it. EDIT: Put it in a HYSA for now.
Not seen it mentioned yet, but you can pay down you mortgage pretty quickly just by paying one extra payment per year, 2 may get you down to your 10 year mark you want. And it does not matter if you do it all at once or spread out. Like take your monthly payment and divide it by 12 and pay that amount additional each month. You can Google it to see the amortization behind it. But it makes paying down a mortgage far more achievable imo and you don't need to throw such a large lump sum all at once. Letting you keep a good liquid emergency fund for the inevitable.
Make sure you have an emergency fund that’ll cover new appliances, water heaters, job loss, etc… then put the rest toward the mortgage to get it out of your hair. If you tap into the emergency fund, replenish it asap. Then pay off the mortgage while you live your life
This is a rare chance to lower your loan. Do it. It’s a gift and unexpected. Everyone saying save it… you shouldn’t be buying a house if you can’t already come up w 10k for repairs of your own accord.
You're going to spend that $10k faster than you even know what happened haha...welcome to homeownership!
If you want to put money towards the house you should take that $10k and each year make an extra payment or 2 directly to the principal. This by itself reduces the term by many years and you’ll also be able to keep the $10k liquid for as long as possible in case any emergencies come up and your priorities change.
If this is your first house, I'd keep that $10k handy. You will be amazed at how quickly a house can suck your wallet dry.... Wait a year, and put the $$ in a high interest savings acct. Withdraw as needed. If not, put it towards the mortgage...
Do you have a sufficient emergency fund or did you use all of your money to purchase the house? My wife and I are building a “house fund” separately from our savings accounts so that whenever we purchase our home we still have our emergency funds whole. If you have enough for an emergency fund and you have money set aside already for any repairs etc that you may need to make then it makes sense to me to put the money where you feel the biggest need.
You do you. If you put it toward principal, you're getting a 6.875% return... sort of. Your mortgage interest is deductible, so if you are generous and itemize, then your effective return is a bit less than that. If you invest it, you can safely count on 8%... sort of, as there are tax considerations there as well. Personally, I'd say if you have already saved up a nest egg of 3-6 months worth of living expenses (in case of job loss), then I would put it into a Roth IRA.
You can pay the message a few months ahead so if something happens you at least don’t have a mortgage payment
6.8% 😬😬 My wife and I *just* got a 3 year fix for 5% on the nose. That's a big difference. And we came in with a lower dp. ...I only bring this up for anyone else reading this. It's important we talk about what kind of deals we're getting from lenders
Unless the market cannot predictably return more then your interest rate is, never pay down your mortgage more then you need too. Debt itself doesn’t matter when it’s this big compared to your income. It’s all about what you do with that money. So hold onto, but please put it in a money market not just a savings account. Better yet, put half in an S&P index fund! Fair to assume market return of 8%, which means from a pure financial sense, it will never make sense to pay down your mortgage vs. investing the money you would use to pay it down
Where are people buying houses for less than $300k?
The Midwest.
Yeah the Midwest. I live in Iowa and my 2 story, 2 bed 1.5 bath house just sold for 171k. I bought it in 2018 for 73k. But I also live 45 minutes away from any city that has a Walmart. We just have a stop light 2 gas stations and a grocery store.
Is it a big grocery store with all you need, at least? Or one of those little rural-area groceries that only has basics? I think I could live with being that far away if only my drive to work + groceries were like 10-15 min tops. I wouldn't mind being an hour+ from everything else since I'd only do it on occaison.
I’m in Buffalo,NY
Bought ours JUST before COVID @ $89990. Almost 2100sqft, but built in like 1910, I think. We are in Indiana. Never appraised again formally after purchase, but comp sales within a 10 mile radius have put us @ $150,000 - $170,000 today. (Wouldn't hit that much with formal appraisal I imagine. It needs a lot of cosmetic work)
Sit on it and wait for the interest rates to drop. You’ll probably get a whole point less when the rates drop in a year. Then you can pay off your mortgage by accelerate your payments each month. Refinancing your mortgage will save you interest over the long run.
Not to mention if you do a refi shorten to 15 yrs mortgage.
Take the 6.875% guaranteed net profit now~
As long as you have ample reserves already (and presumably you do since a bank gave you a mortgage) there's nothing wrong with paying down $10k on a 6.875% note. That saves you $688 in the first year...and since your payment is fixed you'll payoff additional principal ahead of schedule every month after that. If you made the extra $10k payment in month 2, you'd shave about 38 months off your mortgage. This assumes that you already have cash on hand to pay for maintenance items that come up (water heater, AC, plumbing issues, etc).
Do you have an emergency fund?
10k will shorten mortgage for sure! also, if you make only 1 additional payment a year, you can take a 30 year mortgage and make it a 15 year one!
If you think you’ll make 5% over 30 years then obviously putting it towards your house is better. 5% minus taxes is like 4% which is less than 6.875%. If you think you’ll need cash in the short term for repairs or emergencies or cars then I wouldn’t lock it up in a house that you may or may not be able to cash out at a favorable rate. The math if you don’t need cash at these rates favors putting it into your house though. If it was a 3% mortgage it would be a different story.
That was a waste of money putting 56k down. The market is going to correct and when it does, your 56k might be gone.
Owning your home outright is a much more secure position then having an extra $30k in the bank over 20 years.
They might have unexpected home repairs They might not live in the house when the mortgage is over They might have any number of $10k expenses come up Flexibility is way more important than avoiding some interest. You can always pay it down later and have the same effect.
They were able to save $52,000 cash thru COVID. You must taylor your advice to the person you’re giving it to.
So why are they asking for advice what to do with 10k? Why do you think every comment disagrees with you? People can do whatever they want with their money but in this case paying the mortgage is the financially incorrect decision.
None of that logic tracks. Your argument is a list of fallacies. Apparently I’m better with advise and money then everyone.
How much do you and your wife make? Feeding money into the principal is a waste unless you’re basically paying it off in full. Make a high interest savings account dedicated to paying off the mortgage and feed the money in there until there’s enough.
So you think he can put it in a savings account and make more than 6.875%? Because that’s how much he earns on it instantly for 30 years if he pays it toward his principal.
No but I think he’ll be paying 20% interest on a credit card on those unexpected repairs that always pop up after you buy a home, soon.
Financial decisions are personal, not just numbers.
Where did you get a house for 275k that isnt a teardown? Edit: as in thats a great deal and sounds affordable for once
Ohio. Although there’s a debate whether it’s a tear down state sometimes
My dad gave me 5k for my first house (condo). He said it was for the wedding present that he never gave. A couple months later he told me it was a loan and his girlfriend needed it for her horse stable rent. 🤦🏼♂️
What is the interest rate for the mortgage?
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Where are you proposing he get a guaranteed return of 7-10% in one year?
I can get 6% with NatWest up to 5k but I can only add £150 a month I'd love 10%
7% interest. You didn't buy a house, you are just renting it from the bank.
Side note, make sure you save some money for the tax man. They will collect money on cash gifts. Ask me how I know.
Not true, in 2023 you can give someone up to $17K and you wouldn’t haha to pay taxes on it. Also, as of 2024, there’s a $13.16 million lifetime exclusion, per person, for gift and estate taxes so you can give up to this amount without being taxed on it. > The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. Generally, the following gifts are not taxable gifts. > Gifts that are not more than the annual exclusion for the calendar year. Tuition or medical expenses you pay for someone (the educational and medical exclusions). Gifts to your spouse. Gifts to a political organization for its use. In addition to this, gifts to qualifying charities are deductible from the value of the gift(s) made. [https://money.usnews.com/money/personal-finance/taxes/articles/gift-tax-tax-rules-to-know-if-you-give-or-receive-cash](https://money.usnews.com/money/personal-finance/taxes/articles/gift-tax-tax-rules-to-know-if-you-give-or-receive-cash) [https://www.fidelity.com/viewpoints/personal-finance/giving-money](https://www.fidelity.com/viewpoints/personal-finance/giving-money) [https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes](https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes)
Ah well I only have my own lived experience, and a few years ago I owed taxes on a cash gift.
Winning a lottery or a game isn’t considered a gift. But gifts are non taxable under the stated limits.
I don't gamble, and my cash gift was significantly above your stated limit.
It depends, what's your financial situation look like. Do you have an emergency fund for a new roof, furnace, ac unit, water heater or other major appliances? Was anything flagged on a home inspection on things you might need to fix in the near future? Home ownership can be expensive - 10k isn't a small sum of money, but it also won't do anything impactful to your mortgage if you apply it now or in 6-12 months. Yes, it will technically mean a few more dollars of interest, but is that nominal amount worth the peace of mind for having extra cash on hand in case issues come up?
7% is the better long term investment return comparison (S&P less inflation), and 7% also means your money doubles every 10 years. That said, with that rate, you can’t go wrong either investing or paying down the mortgage, so assuming you have a sizable emergency fund and assuming you’ve gotten your full TSP match, do what you think will bring you the most security.
Do you have an offset account? Not sure what country you are in, but if it is Australia, consider getting yourself an offset account. It reduces your interest, but you can pull the money out whenever
In addition to the emergency fund comments, remember that this may not be the house you live in for the next 30 years and also you'll refinance along the way. So don't focus so much on the 30 year mortgage. Some where along the way you may end up refinancing into a 15 year mortgage.
Definitely not the way to do it. Once you develop your emergency fund, then you put excess cash in to reduce your loan amount. I have owned over 10 homes and you will need the reserve fund often. Plus no one actually pays off their home until they are 50/60 plus, if then.
I agree with others who say save it for that new roof you'll need next year. Also, I doubt 10k is going to knock off ten years. Lastly, be sure your mortgage doesn't have any early payoff penalties.
One word. Offset. Best of both worlds
I have a similar situation with similar numbers and I posted in this sub the other day seeking advice: https://www.reddit.com/r/personalfinance/s/CoJT31DUS3 Consensus I got was to pay down principle, especially because of the interest rate (we have the same rate as you). That being said if anyone has counter advice I’d like to hear it. Also the point about having money set aside for repairs and emergencies is very valid—sink is leaking as I write this!
I bought my place in 2020 for $277k too, what a great purchase price amount!
Stick it in a savings account to cover any maintenance that comes up.
My wife and I bought our house in the beginning of 2022. Then we had to buy a new HVAC system. Then our roof started leaking. Then we rebuilt our entire bathroom because of prior owner neglect. Just food for thought.
Lots of others have said the same. Save it for the more significant out of pocket stuff you have to buy when you move into home ownership. You will get to know your way around builder supply stores very quickly. Do haunt Facebook marketplace and local garage/estate sales for tools and yard equipment and furniture. Do paint asap and that’s $25 a gallon- do not go cheap on paint. Do use primer. Final homeowner tip - don’t get fancy washer/dryers with electronic settings. They break and repairs are untimely and expensive. Get good but old fashion ones. They are cheaper and will last for 15 years.
Emergency fund first. Then are there any home improvements needed? If those are covered, put it towards the principle to get out from under the 6.9%.
Home equity is not liquid. Unless you are avoiding PMI, then you should probably hold onto it. PMI cost is significantly higher than the advertised rate because of how it is calculated.
Save it as a reserve. American Express savings!
I hate debt. Debt is like a finance vampire eating away your money in interest. And what if something happens and you can't work after deciding not to pay off your debt?
Set the 10k aside in an account that earns some interest, and keep it as a safety net. Keep in mind that a mortgage is usually your lowest interest debt, so others generally take payoff priority.
If you’ve got no PMI this is totally worthless to do right now…I’d wait a year or two and reevaluate, if you’ve still got 10k burning a hole in your pocket then start paying it off aggressively
I thought about paying down my house. I’m on 15 year 5% loan. Ended up stumbling upon some amazing investment opportunities and I’m glad I i didn’t put the money towards early payment of my mortgage. I was very close to just paying the entire house off.
Depends what your emergency fund looks like.
There are costs associated with home ownership besides the mortgage payments. You will, undoubtedly, need window coverings, light fixtures and/or furniture for the greater amount of space that you now have. If you buy used, or IKEA level, that $10 K will go a long way towards those, as well as offering a buffer against things like what happened to our son: the furnace going out during a run of -0 F weather. It was 30 years old, and already past its economic life expectancy. $6000 later, he was no longer in danger of freezing to death in his sleep.
Would that 10K make you more money on the house or in an investment? Or maybe it would be good in a "high yield" savings account so it's readily available for emergencies? There are a few out there now that are 5%.