Home building: cash for down payment vs. paying down lot loan(Posted by GeauxldMember on 10/1/12 at 3:29 pm)
My sister and her husband just bought a lot on which to build their future home. She approached me with this scenario and asked my opinion: she has the ability to pay her lot off in full in 30 months and use its value toward the mortgage, or she can choose to make minimum payments for 3-4 years and continue to hold on to the surplus as cash to put down on the mortgage after construction.
I said I would likely opt to keep the cash on hand,as it provides more flexibility, but thought I'd throw it out there for other opinions.
Facts as relayed to me:
- Appraisal value = $65K
- Loan balance = $37.5K, 6% for 180 months w/ balloon balance due @ 5 yr. maturity.
- She plans to build in 3-4 years
- Surplus, i.e. home savings minus loan payment is approximately $1050/month ($25K over 2 years, $38K over 3 years, $50K over 4 years)
What would you advise?