Your Mortgage: Hold onto your money

When people sell and then buy a home, they tend to settle into auto-pilot regarding the net profits they made from the sale. What I mean by this is that people who sell a home frequently assume the best thing to do is to roll that money into a down payment on a new home. It’s a sensible decision, but is it always the right thing to do? Maybe not.

Here are three things to consider that may make you want to hold onto your money from the sale of a home:

  • Use the money for fun and the future

This idea probably won’t be very popular, but I’m going to say it anyway. Interest rates are really low right now, making homeownership pretty affordable overall. Many of us focus so much of our attention on the future and building net worth/value to help us when we retire. Why not do both though? Use the funds to focus on the now instead. Splurge this holiday season for yourself/your family, fund an exotic vacation, or throw an epic holiday party with all your friends, neighbors, and family. Use the rest to focus on the future by paying down long-term debt or investing in the stock market.

  • Use the money to pay off/down unsecured and/or personal debt

What is the net benefit of using sale proceeds to reduce the amount you need to borrow for a new mortgage loan when you have thousands of dollars in other debt? Every $1,000 financed is equal to about $6 worth of a monthly mortgage payment on a 30-year note. If you rolled $40,000 of sale proceeds into your new house, you would save about $240 per month, but if you have that same amount in consumer debt (credit cards, car loans, student loans, etc.) the payments associated with those will far exceed the $240 mortgage payment reduction. What’s better for you? Having a lower mortgage payment but still having significant consumer debt or having little to no consumer debt with a slightly higher mortgage payment?

  • Use the money to update/upgrade your new home

Most buyers buy existing homes versus new construction, meaning there’s a significant chance they’ll want to change something about the house. Wouldn’t it be nice to make the great new home you purchased a perfect home with things like new carpeting, paint, or an updated kitchen? Saving your proceeds can fund such projects while improving the value of the asset you just purchased. What’s better for you? Having equity in the home without much money leftover to fund upgrades or having a perfect home without much equity?

The purpose of this post isn’t to minimize the significance of using sale proceeds as the down payment of a new home. That may be the smartest move you can make, but you’re also in a position of great flexibility, so don’t fall into the trap of letting it be an auto-pilot decision. Take some time and 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 thus empowering, clients to make the best financial decision possible for their situation. Contact Fountain today.

Mike Miles NMLS ID: 265927; Fountain Mortgage NMLS: 1138268