My husband and I have a home with a $100,000 balance on the mortgage. We just refinanced at a 4.75% interest rate (from a 6.35%). Our house is valued at about $156,000. We're in our late 20s (ok, my husband is 28; I'm 30 and in denial) and we're hoping to have kids soon. Our house is on the smallish side, so within the next 5-7 years, we are planning on building a home. We already have the property. Within the next couple months, we will have finished paying off all other debt (except the mortgage). With the extra money (about $500/month), my husband wants to pay more towards our mortgage principle, but I think we should take that money and invest in a CD or other vehicle to go towards the new house, once we're ready to build. What do you think we should do? And if you think we should invest the money, where would you put it? A CD? BTW - we have most of our ducks (i think!) in a row - we have enough in savings (about $40,000) in case of a lay off, we're both putting money into retirement accounts, and we just bought life insurance.
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If you are planning on selling the house I wouldn't pay any extra on it because you won't get any extra out of it by doing that maybe your money back. Even though the interest rates are totally bad right now. I would still say to save it and but it toward the new house along with the $40,000 you already have and pay the lump sum on it. That means you are borrowing less and your payments will be less and that is money you don't have to pay interest on. So you save money each month and on interest over the term of your loan. So you come out better doing it this way. And then if you pay extra on that house each month and get it paid for sooner you save even more.