Recently, my wife and I bought a home with a unique mortgage setup: $750k price, 0% down, at a 5.75% rate which increases after 7 years. To secure this rate, we also had to deposit $50k in a 5% yield savings account. After selling our previous home, we now have $500k. We’re debating whether to apply this towards the mortgage and recast it, or keep it in the high-yield account to cover future payments, preserving liquidity. The potential monthly payment would drop from $5,208.22 to $2,213 with the lump sum payment, or effectively to about $3,125 by using the yield to offset the mortgage. Given we plan to stay only 2-3 years, the flexibility of having accessible funds in case of an emergency is appealing. Any thoughts on which scenario might be more beneficial financially?
Why buy a house if you’re planning to stay for only a few years?
Sage said:
Why buy a house if you’re planning to stay for only a few years?
The main reason is the excellent school district, which offers significant long-term savings on education. There’s always the possibility we could stay longer if circumstances change.
Have you considered the adjustment in interest rate after 7 years and any potential balloon payments?
Nico said:
Have you considered the adjustment in interest rate after 7 years and any potential balloon payments?
There are no balloon payments; the plan is to refinance or sell around the 7-year mark. The payments would increase gradually if we stay beyond that.
With your short-term stay in mind, keeping the $500k liquid in the high-yield savings seems wiser. It maintains your cash flow flexibility without tying up funds in home equity that you won’t benefit from long-term.
Consider investing the $500k instead of leaving it in a savings account. It could potentially earn more, depending on the investment, while still being somewhat liquid.
Erie said:
Consider investing the $500k instead of leaving it in a savings account. It could potentially earn more, depending on the investment, while still being somewhat liquid.
That’s a valid point. Our current investments are in low-risk ETFs. Diversifying further could yield better returns without significantly increasing risk.
Before deciding to recast, make sure it’s definitely allowed under your mortgage terms and that the lender will recast for the amount you’re planning.
Tatum said:
Before deciding to recast, make sure it’s definitely allowed under your mortgage terms and that the lender will recast for the amount you’re planning.
Yes, the lender confirmed we can recast for a $500 fee.
Remember, interests from HYSA are taxable. Have you factored this into your calculations?
Shea said:
Remember, interests from HYSA are taxable. Have you factored this into your calculations?
Yes, HYSA interest is indeed taxed, which could affect the net benefit.