Pros and Cons of paying off Mortgage versus buying Vacation property?
March 11th, 2010 | by admin |We recently have come into an inheritance and are trying to decide the best way to go. We currently have an exsisting mortgage on our home ($150,000), but we would also love to buy a vacation home up in the mountains (approx $250,000). We will be getting approx $300,000 from the inheritance… Question is – is it better to pay off our mortgage on the home we live in, and then buy the vacation home with a new mortgage (putting down about $100,000)… or is it better to keep our current mortgage, and pay cash for the vacation home without a mortgage? Are there benefits, risks, cons, tax rules, etc?
We are in our mid 40s, have a nice nest egg for retirement, no other bills, and we are looking up the mountaings about 2 hrs away, which we could ski in the winter, get away in the summer, but continue to take our once yearly "real" vacation – we would also consider using the vacation home as a rental property – which I guess opens up a new can of worms with income.
Paying off your current mortgage would do wonders for your credit rating – which would lower your rates on a lot of things, including a new mortgage on a vacation home.
Getting out of debt in your primary home – which you NEED to keep, unlike a vacation home which is a luxury – should be your primary concern.
5 Responses to “Pros and Cons of paying off Mortgage versus buying Vacation property?”
By Kirstie B on Mar 11, 2010 | Reply
Paying off your current mortgage would do wonders for your credit rating – which would lower your rates on a lot of things, including a new mortgage on a vacation home.
Getting out of debt in your primary home – which you NEED to keep, unlike a vacation home which is a luxury – should be your primary concern.
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By kati k on Mar 11, 2010 | Reply
My advice would be to pay off your home and too purchase the vacation home. you will have a good down payment for the new home and will only have one morgage payment with the remaining balance. since you already have a morgage then you should already be budgeted to pay for it still.
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By golferwhoworks on Mar 11, 2010 | Reply
pay off the home you live in. You may want this vacation home BUT how often would you go? that could be huge in this. If I were going 2-4 times a year I would not buy it. If I were going every week end and every vacation then I would. I love to go to Fla and golf with my friends when I can but I would not buy a house or condo down there as I can only make it 4 or 5 times most years and last year just 1 time
Once you pay this home off even a job loss will not be so bad if you save the rest
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By Maggie G on Mar 11, 2010 | Reply
A lot would depend on your overall financial picture. How old are you? What is you net worth? Do you have 3-6 months of living expenses in an easily accessible account? Do you have a retirement nestegg? Is your job stable?
A vacation home is pure indulgence. How often would you use it? One or two weeks a year? Or would it be close enough that you would use it frequently? Would you be satisfied going to the same place year after year for vacation? Lots of thing to consider.
If it were me. I’d pay off the house and stash the rest. If I wanted to go on vacation, I’d rent a place once or twice a year.
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By mom on Mar 11, 2010 | Reply
The time is right to buy any home. It is a buyers market right now. Although paying any mortgage off feels good psychologically it is not always the smartest move. With interest rates at historic lows the money you would use to pay off either mortgage could be put to better use. Consider putting down 20% on your vacation home, locking in a low 30 year rate and maintaining two mortgages. Depending on your current mortgage rate, you may want to refinance your existing mortgage to a lower rate. The interest on both mortgages will be tax deductible if you itemize. Keep the remainder of the cash in some sort of investment. If you are risk averse consider Money Market savings or C.D.’s Talk to a fee only financial planner that can give you unbiased advice. You can Google Fee only planners to find one in your area. They charge around $1500 to do a financial plan for you but should not try to sell you on any specific financial products.
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