Dear readers, we would love to have your input again.
It’s terribly useful to be able to throw quandaries out there and hear a plethora of advice and suggestions from all walks of life. You’ve helped us decide on a vehicle to purchase, given us ideas on how to solve our food storage problem and had a ton of suggestions for how to get around not having a way to cook food when we first got out here. You guys are The Best.
This time, it’s a financial question. If your eyes have already glazed over, feel free to skip down to the bottom and say hi to Sawyer.
If you’ll recall from forever ago when I wrote all about construction loans, during the building period the home-owner (that’s us) is only required to pay simple interest monthly on the amount of funds that have currently been withdrawn from the loan.
What this looks like for us right now is that we have drawn about $40k at a simple interest rate of 3.875%. That leaves us with an interest only payment due of only about $130 per month (so far). This amount will increase as more funds are drawn from the loan but is otherwise static.
A normal mortgage payment follows a trend that looks like this, where the majority of your money goes toward interest and a teeny tiny amount goes toward principal:
However, right now we’re at a place where that is temporarily flip-flopped. We have a tiny amount of interest and any additional funds we throw at it will go directly toward our principle. We could potentially start paying down our mortgage before it even begins, thus saving even more money on future, compound interest and shaving down our future monthly payments, not to mention time off the loan.
There are all very good things indeed and I was terrifically excited when I realized how that all worked out. However, there are other things we could do with those funds as well.
1. Save it as security for when our mortgage starts in earnest. We currently have about 4-5 months worth of monthly income set aside as a general emergency fund, but we could always add to that. (Things have settled down quite a bit and we have been able to sock quite a bit more away each month than we could when we were first getting set up).
2. Put it toward the house itself by upgrading finishes, etc. If we find a great deal on Craigslist for some sort of building material or appliance, etc. it would be nice to have the funds set aside to purchase it with cash.
3. Invest it. We are currently setting aside quite a bit out of Noah’s paycheck toward retirement and his employee stock purchase plan account, but we have been meaning for a long time to actually start investing on our own and now could be as good a time as any. Better, in fact, that others, some might say: if we can earn at a higher interest rate than we’d be saving by paying down the mortgage (so, a return of more than 4%) then it makes more sense to invest.
A lot of this depends on what our long-term goals are (aside from “Live in a structure without wheels), how much satisfaction we would get by paying down our mortgage early and what kind of investments we might potentially make. It’s kind of an impossible question to answer definitively, BUT we would love to hear what YOU would do in our situation.
Aren’t finances exciting?!