So when I do finally sell my current home, shouldn't I use all of the proceeds from the sale for making the down payment on the new home?

Often the answer to this question is a resounding YES!  However, in some cases we may actually find that there could be another, wiser use for some of those funds.  Often we see that a borrower may be better served by using some of the proceeds from the sale of their current home to shed consumer debt, even though the tradeoff may mean a higher mortgage.  To determine which would be a better fit for an individual applicant we need to do a very careful analysis.

If, for example, we see that someone is carrying $15,000 in a car loan at 8.5% interest and a credit card balance of $10,000 at 14% interest, then this borrower is paying approximately $2,600 per year in interest for these two debts.  The scenario I am highlighting today is to perhaps take $25,000 from the proceeds of the sale of their current home and divert this money instead to the elimination of these two debts - the car loan and the credit card balance.  By doing this, they would add $25,000 more to their new mortgage loan than they otherwise would have done, but their interest will only increase by approximately $1,300 per year.  That is about half what they were paying on the consumer debt!

But there is another option that is even more exciting that could be afoot in a scenario like this - the payment differential.  The payments they were making on the consumer debt are approximately $400 per month.  But the payments on the mortgage are only $126.52 more per month.  That means this borrower has $273.48 left over each month that they could use in any number of ways.  But if they used the extra $273.48 to pay down the principal balance of their mortgage, they could have their mortgage paid in full 8 years ahead of schedule.

There are myriads of options on how to best utilize an extra $273.48.  One of my coworkers recently helped a client in a similar situation use these funds to pay for their son's college.  That's an example of why we love what we do!  We can use the strength of numbers like this to help people realize their dreams.  

Let us help you reach your dreams!