Paying off the house or cash savings ?

[dwhuser]

My boss recently changed and the work environment is not good anymore (never imagined this would happen), I am in a constant pressure and no job security. It's a shocker in a fulltime state job.

We bought a house last year needless to say that the prices have fallen. We are now in a dazed state as we just realised we don't have any savings, whatever we had, we made bad choices - house, 2 cars (They looked good at that time though) and put about 10% on the house.

We were planning on to invest all our savings in the house as we recently paid off our two cars and no other debts. But after reading some posts here on the housing and investment market. I am not sure if I want to put everything in the house, having my job at risk and no GC yet.

Being a novice in fianancial matters, need advice.
Appreciate your thoughts on this.

[mps]

I would save expenses of atleast one year in an emergency fund before putting extra money towards house payoff.

In better job market you can reduce your emerency fund to upto six months worth of expenses and move rest of the money to reduce principle you owe towards your house.

[immitul]

We are doing the same...of keeping some amount aside for unexpected events, and then invest further on house or some thing else.

[arian2002]

Good that you have paid off your car loans. So now save for emergency instead of paying off your home loan early. Not a financial advisor but I think that's the most logical thing to do now when things are not that rosy.

[LostInGCProcess]

Originally Posted by dwhuser

My boss recently changed and the work environment is not good anymore (never imagined this would happen), I am in a constant pressure and no job security. It's a shocker in a fulltime state job.

We bought a house last year needless to say that the prices have fallen. We are now in a dazed state as we just realised we don't have any savings, whatever we had, we made bad choices - house, 2 cars (They looked good at that time though) and put about 10% on the house.

We were planning on to invest all our savings in the house as we recently paid off our two cars and no other debts. But after reading some posts here on the housing and investment market. I am not sure if I want to put everything in the house, having my job at risk and no GC yet.

Being a novice in fianancial matters, need advice.
Appreciate your thoughts on this.

Sorry to here the precarious condition you are living in. Try to be good to the person who is causing the pressure, cause most important of all right now is: You need the income. So, fighting with somebody is not a good idea and its going to hurt you, not the other person who is causing the pressure.

If the price of the house has fallen a lot, then its not a good idea to keep paying for the original price of the house. Talk to the bank, and ask what options you have.

Be prepared for the worst case scenario and start saving so that you have some buffer to make payments for at least 6 months, in case you lose your job.

my 2 cents.

[texcan]

I donot see any point in paying off the house, as you can deduct the interest to get some tax benefits. Why loose any benefit you can get.

On the other hand, use the money you were thinking of paying off the home for investments. Investments may it be CDs or stocks ( though right will come in future).

Although personally i have never bought a brand new car in US. Car depreciation is biggest loss one can take; we just bought a 5 th car...all cash paid and it is used.

Keep your cash, play with 20-30% based on your risk apt, donot pay off your home...cash is king.

On your comment of " being a novice in financial "...i have to say it Everyone is a novice in every matter, we all learn it here. Rather one who says he/she is a novice will make cautious decisions; i am wary of so called experts/gurus who mauled financial markets and still call themselves experts.

Start reading finance articles, blogs and you will be able to understand.

[pmat]

Calculate the "real" mortgage interest rate you are paying after taking tax deduction into account. It will be slightly lower than your mortgage interest rate.

Then, see if you can get a better return by investing your money somewhere else. If you can't get a better return anywhere else then pay down your mortgage. Normally - you will find investments with a better rate of return than mortgage.

[texanguy]

look to see if you can reduce your monthly mortgage payment by means of "recasting". some mortagages offer this choice, some dont.

Say you are paying a note of 1500 per month, and you would like to pay 1400 per month, then assuming that you have put six months of expense aside in emergnecy funds, pay off your mortgage principal as much as you can. Next, call the lender to tell them that you want to recast the loan. Recasting means figuring out the payment as if your today's mortgage balance is what you would pay on for the rest of the period on your loan.

It may go down by say $50 dollars or sth. But thats the interest you would not be paying to the lender. Which is indeed the savings your will have. $600 / per year.

I am not an expert, just one opinion.
You have not given any specific numbers or your location etc. Hence the above is a quite generic description of what one can do

Originally Posted by dwhuser

My boss recently changed and the work environment is not good anymore (never imagined this would happen), I am in a constant pressure and no job security. It's a shocker in a fulltime state job.

We bought a house last year needless to say that the prices have fallen. We are now in a dazed state as we just realised we don't have any savings, whatever we had, we made bad choices - house, 2 cars (They looked good at that time though) and put about 10% on the house.

We were planning on to invest all our savings in the house as we recently paid off our two cars and no other debts. But after reading some posts here on the housing and investment market. I am not sure if I want to put everything in the house, having my job at risk and no GC yet.

Being a novice in fianancial matters, need advice.
Appreciate your thoughts on this.

[tejonidhi]

I suggest you to think of investment options like stocks( only suggestion not an advice) I agree with other members as I presonally think paying the house loan is not a good option as we have to pay more tax to uncle sam. Enjoy the cash benefit that you get for your TAx and keep some money in Bonds and stocks and a little liquid cash( 10K to 20K).

[bharani]

IMHO If you have money save it for future payments(atleast a year's payments). If you lose job, this money will help make your payments.

[gclabor07]

My recommendation would be to build at least 6 months of emergency fund. Open an account with ING Direct or HSBC where they pay decent interest rate on a savigs account. Build the emergency fund first.

Once you have sufficient foundation, then I'd say start building investment foundation. If you employer has 4o1K plan, then start putting pre-tax dollars upto the maximum contribution at employer matches (generally it is 6%). If your employer doesn't have 401K plan, then open a ROTH IRA and start investing in low cost mutual funds or index funds. Vanguard is generally the best place to get low cost, no load funds. Once you max out both 4o1K and ROTH IRA, then start looking into opening a taxable individual investment account.

Hope this helps.

Disclaimer: I've all of the above I'm recommending and have followed the same plan I've given you.

[DSLStart]

Your post is contradictory. At beginning you said

Originally Posted by dwhuser

We are now in a dazed state as we just realised we don't have any savings, whatever we had, we made bad choices .

So how are you going to pay off your house if you've no money? Do you mean you are going to sell it and pay off mortgage? But in current market your house value would be less than what you owe, so you may end up owing more to mortgage company than what you'll get after selling house.

Originally Posted by dwhuser

My boss recently changed and the work environment is not good anymore (never imagined this would happen), I am in a constant pressure and no job security. It's a shocker in a fulltime state job.

We bought a house last year needless to say that the prices have fallen. We are now in a dazed state as we just realised we don't have any savings, whatever we had, we made bad choices - house, 2 cars (They looked good at that time though) and put about 10% on the house.

We were planning on to invest all our savings in the house as we recently paid off our two cars and no other debts. But after reading some posts here on the housing and investment market. I am not sure if I want to put everything in the house, having my job at risk and no GC yet.

Being a novice in fianancial matters, need advice.
Appreciate your thoughts on this.

[mita]

I agree that car depreciates as soon as you drive out the showroom but what I believe is that if you can afford to buy your dream car and plan to keep it for atleast 7-10 years go for it. Life is short, if you can enjoy luxury and at the same time know your limits don't restrict yourself and drive used cars all your life.
As far as your home mortage is concerned, talk to your banker and negotiate favorable terms. If you plan to live in that city depending on job market, don't worry about home prices. I hope you did not buy that home to make money overnite but to enjoy the luxury of living and owing a home. In any case, don't plan to put money on home, better to save or invest where it makes more sense like stocks, CD's or land/home in India.

Originally Posted by texcan

I donot see any point in paying off the house, as you can deduct the interest to get some tax benefits. Why loose any benefit you can get.

On the other hand, use the money you were thinking of paying off the home for investments. Investments may it be CDs or stocks ( though right will come in future).

Although personally i have never bought a brand new car in US. Car depreciation is biggest loss one can take; we just bought a 5 th car...all cash paid and it is used.

Keep your cash, play with 20-30% based on your risk apt, donot pay off your home...cash is king.

On your comment of " being a novice in financial "...i have to say it Everyone is a novice in every matter, we all learn it here. Rather one who says he/she is a novice will make cautious decisions; i am wary of so called experts/gurus who mauled financial markets and still call themselves experts.

Start reading finance articles, blogs and you will be able to understand.

[gcbikari]

I am GCBikari and I approve this message. You are saying you ran out of savings and in next paragraph you're talking about investments!! Anyway what I did was list out all minimum payments (rent/mortgage, car, utilities, groceries, gas). This gives the money needed every month in worst case. Then multiply by 6 months. Keep that amount in bank or a locker (now a days difficult to trust banks also!!). Then go for what others talk about like 401k, Roth IRA.. You will have a better start once you know how much you need per month to make a living on bare minimum.

Originally Posted by gclabor07

My recommendation would be to build at least 6 months of emergency fund. Open an account with ING Direct or HSBC where they pay decent interest rate on a savigs account. Build the emergency fund first.

Once you have sufficient foundation, then I'd say start building investment foundation. If you employer has 4o1K plan, then start putting pre-tax dollars upto the maximum contribution at employer matches (generally it is 6%). If your employer doesn't have 401K plan, then open a ROTH IRA and start investing in low cost mutual funds or index funds. Vanguard is generally the best place to get low cost, no load funds. Once you max out both 4o1K and ROTH IRA, then start looking into opening a taxable individual investment account.

Hope this helps.

Disclaimer: I've all of the above I'm recommending and have followed the same plan I've given you.

[dwhuser]

Right now we don't have any savings, paid off the car as of Oct 30th. I was trying to figure about the money which we are going to save from here on...I will take all your advice, sounds so logical and keep the emergency fund for 6 months aside.
Coming to the city we live, it's a small place in Florida and not many employment opputunities for techie people. Like I said I am working for state while my spouse is consulting and travels every week (can't find a job in his area). We never imagined a management change leading to a risky and frustrating job situation, making us to repent our buying a house. Because the moment I stop impressing this new boss, we are out. Huh...I don't want to imagine that, because we will be left with a house we can't sell or rent (don't know if some one would want to rent it) and have to move.

Thanks all for your time and advice. Let's keep it coming...