A Financial Question

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home-owner (that’s us) is only required to pay simple interest monthly on the amount of funds that have currently been withdrawn from the loan.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:

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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?!

happysawyer

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16 thoughts on “A Financial Question

  1. There are a lot of uncertainties associated with building a house and living there, and unexpected costs are very likely to crop up. I would proceed with my original plan, but hold onto the extra money to pay for the things I didn’t expect. If the money is still around after you have settled into your new place and financially got it all covered, I would decide what to do with it then.

  2. I like option 2 . You never know what might crop up. Do you have enough furniture to fill a home,window treatments,etc.?

    1. We definitely don’t have enough furniture to fill the house, that’s true! I am thinking that is going to be a very slow labor of love, since interior design is truly not my thing ๐Ÿ™‚

  3. I would hang on to the money until building is complete. Kudos to you for being able to save so much! When our house was built there were certain things (upgrades) that the builder wanted cash for. Ours is not a custom built home though. Things like white doors, cabinets above the laundry, etc.

  4. Hi, Sawyer! My word, but you’re a sweet pea! Oh, and tell your mom that I agree that hanging on to your cash for a while is probably a good idea. Your parents seem awfully smart about money!

  5. I just thought of something that you might want to use that money for, later. Does Noah have a shop/garage sort of thing in mind?

  6. I would much rather talk about interior design/decorating…. So I’ll just skip down and say “Hi” to Sawyer. I will let Spencer read the ” financial stuff”His area of expertise ! He’ll get back to you!

  7. Oh man! Really you are in a great situation and *any* of those options would be good. I don’t really know what to tell you, but pray about it and sense God’s leading… Which I know you all are doing. So, Yep… That was pretty helpful, huh? However, it can’t hurt to hold onto it until things get further along. You could always throw a lump sum at principal or towards retirement later.

  8. Sorry I am not that good with loans, but I hope it works out for you. If it were up to me I would try to get rid of the loan as quickly as possible. Other than that HI SAWYER!!

  9. Split the extra you have each month or alternate months. 1/2 to save for unexpected and 1/2 to pay down. That way you are still building your emergency reserve (which I imagine has a tiny interest rate) AND paying down the loan principal. If something dips into your reserve stop making extra payments until it is built back up. ๐Ÿ™‚

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