We have a home that needs some expansion, we have good income. Is it better to pay off the mortgage, or should we save money?
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 (okay, 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.
Congratulations, as you seem to be in a very strong financial situation. I strongly recommend that you hire an experienced professional financial planner, to best to plan for your financial future.
When weighing such serious investment decisions, a vast numbers of factors need to be carefully considered -- the strength of your area's housing market, tax benefits, job security, projected income, and your long-term goals (such as the children you mention), just to name a few.
These are extremely complex and personal decisions, even in a stable economy (and currently, it is anything but). Even those with a deep and sophisticated understanding of financial matters often consult with a qualified financial planner when making decisions this important.
I suggest you start by investing a good deal of your time thoroughly researching qualified and experienced financial planners/advisors in your area.
Here are some quick tips on finding a financial planner/advisor:
Find out the educational background, licenses, accreditations, and professional registrations they hold. Of course, you're going to encounter an alphabet soup of titles -- CFP (Certified Financial Planner), PSF (Personal Financial Specialist), CPA (Certified Public Account), just to name a few -- so educate yourself on what these titles mean. This will help you evaluate the advisor's qualifications and their suitability to your financial needs.
Beware of unscrupulous "advisors" out there who give only self-conferred or generic titles. Calling oneself a "Financial Planner" or "Wealth Manager" is fine, but that title by itself reflects absolutely no official training, degree, or accreditation. When you come across a title or professional designation, go online and find out what organization controls the use of this title, the standards and training required to receive and retain the title, and the products the title relates to (i.e., tax preparation, stock trading, insurance).
If the title is of any significance, a quick Google search should turn up a legitimate organization that is recognized within the financial industry. Some of the organizations even offer free online verification of their members as well as other information, such as disciplinary records.
How much experience do they have working for clients similar to you? Is their experience with the types of products and services you are looking for?
Ask Around & Get Referrals
Talk to your family, friends, co-workers, and professional associates you trust and ask if they have had worked with any professionals that they would recommend (or conversely, ones you should avoid). And don't be afraid to kindly ask financial advisors themselves for references willing to speak to you regarding their professional abilities.
Identify several financial professionals of interest and call and introduce yourself. Give them a basic overview of your financial needs, and ask if they would schedule a face-to-face meeting with you to discuss the matter further. Most professionals will be happy to schedule such a meeting for free, or at most, a nominal fee (around $30).
These meetings will give you a chance to see their office, receive some of their client brochures and materials, and also give you a feel for their professional demeanor. Keep in mind, you're in the driver's seat on this one; as a young couple with many years of money-earning and investing ahead of you, you will be seen as a highly desirable client to many.
Don't settle for anyone you don't feel comfortable with, and avoid anyone who pressures you to immediately hire them. And if they don't treat you with respect, or do a poor job explaining what they do and how they do it, move on. This professional relationship holds the potential for life-altering repercussions -- both positive and negative -- so don't invest with some jerk you don't like, or some Bernie Madoff-type who gives little explanation of his methods. Keep shopping until you find true professional that suits your needs and values your business.
Finally, understand how you are to pay for their services. These types of professionals typically charge based on an hourly fee, a flat fee, a commission on the investment products they sell you, a percentage of the value of the assets they manage for you, or a combination of the these methods. What ever payment structure they use, they should be willing to fully explain it to you, and have it in writing.
This is a very important undertaking that may impact you and your family's life-long financial situation. It should be done cautiously, wisely and with a substantial amount of research and due diligence.
To learn more about investing, see How Do I Start Investing in the Stock Market? A common question many homeowners have is whether they should pay-off their mortgage early. See Should I Make Extra Payments to My 30-Year Fixed Mortgage?
I wish you the best of luck in your efforts, and hope that the information I have provided helps you Find. Learn. Save.