it sounds like you already have the townhome?

In this case, I would do two things, maybe 3:

1) pay down the principle SOME
2) save for a move in 7 years
3 (maybe) open an IRA or Roth IRA

If you have $500 extra per month, I would:

1) pay an extra $100 per month on the mortgage. This starts paying off
the townhome in the event you live there longer than 7 years. In 7
years I would expect the mortgage to reduce an exta $8400 because of
these extra payments.

2a) contribute between $50-$100 each month to a CD, bond fund or money
market account. Expect this money to earn around 4%- it will keep up
with inflation, but not make you a millionaire. This should generate
about $4200-$8400 in 7 years.
3a) contribute about $400/month to a Roth IRA. Your 401k amounts are
admirable. Supplementing 401k savings with a Roth account might br a
good idea. Do not consider this money for a new house. Consider it
money for an early retirement (Roth rules allow for withdraws before
401k accounts allow for withdraws, however there are exceptions to this
statement).

2b) contribute $400/month to a taxable bond, CD or money market
account. This would generate $4800 a year/ about $30,000 for a down
payment on a house.

all situations assume 401ks are still being contributed to.

<<While prices aren't at the insane levels of Manhattan or San
Francisco they are still in the are-you-kidding-me range?>
Inbetween the east coast and the west coast, there is a 3,000 mile
stretch of "fly over" states where the cost of housing is much lower.
Something to think about...

John Cowart

Ian Pilcher wrote:
- quote -

You really only need higher return. There are many liquid investments
that offer better rates than a mortgage. Taking on risk is what you
generally have to do to get those higher rates. That doesn't make
investing elsewhere necessarily undesirable.

-Will

Bo peep,

We live in North New Jersey, 15 minutes from New York. While prices
aren't at the insane levels of Manhattan or San Francisco they are
still in the are-you-kidding-me range? You factor in the sky-high
property taxes in Jersey and that puts a decent single-family home just
out of our reach. We could've found a fixer-upper and/or something
decades old, but we wanted the peace of mind of new construction. The
townhome we found is 3-years old, in a development complex and fairly
spacious with a bus stop right at the gate to NYC. All in all, it made
the best sense for us.

In article <1138392858.416158.219890[at]g47g2000cwa.googlegroups.com> ,
"bo peep" <cowartmisc1[at]yahoo.com> wrote:

- quote -

Agreed. I wish we had a shot at that one before they made
the deal. The other option I would have proposed is to rent
if you are not planning to stay 7 or more years. Rent is
dirt cheap right now (compared to the alternatives). I would
have suggested renting about 3 years, then buying the starter
castle in the suburbs.

-john-

--
================================================== ====================
John A. Weeks III 952-432-2708 john[at]johnweeks.com
Newave Communications http://www.johnweeks.com
================================================== ====================

Jennifer wrote:
- quote -

Investing in stocks (about 10% +/- 20% deviation) is not necessarily
smarter than paying down mortgage (about 5% +/- 0% deviation).

Please see my responses below for further details:

Armani wrote:
- quote -

RESPONSE: Someone has made an argument for it, my response will be
contained within that thread.

- quote -

RESPONSE: If you intend to stay in the property for only 5 years, you
might be better served thinking about another loan program other then
30 YR fixed rate. As you probably already now, a 30 FRM is front
loaded with interest, and after 5 years (assuming that you don't make
any additional principal payments) you will have approx. 91% of your
original principal remaining. There are several other loan programs
that would serve you better (lower interest repayment benefits; lower
monthly payments, etc.). Ensure that your loan originator provides you
with a total cost analysis so that you can better understand how "the
math" works for you or against you in a particular loan.

Should I build
- quote -

RESPONSE: As another poster has already stated, if you can't find an
investment that has the same properties of liquidity, safety and ROI;
then building equity might be a plausible investment (Where you live
has something to do with this; you must give weight to the market trend
in your area. Downward trends, deinflation of housing prices should be
quantified when making this decision).

- quote -

RESPONSE: The amount of equity has no bearing on the saleability of a
home. The market dictates that, not the amount of equity you have
accumulated.

Regards,

Scott Miller
Commercial and Residential Lender/Broker

www.RealEstate-IQ.com
www.EZMortgageLoanz.com

<<We are buying a townhome and will probably need to move in a few
years as our family, hopefully, grows.>
Since mortgage interest rates are still pretty low, and you are quite
young, it might make more sense to go ahead and buy a family-sized
house now instead of the smaller townhome.

John Cowart

We are in our early 30s. Both of us contribute the max to our 401ks. We
have over $130K in our 401ks. Don't have IRAs. We do not have debt of
any kind. We are buying a townhome and will probably need to move in a
few years as our family, hopefully, grows.

Jennifer wrote:
- quote -

For this to be true, you need an investment which offers 100% liquidity,
zero risk, and a return higher than your mortgage rate. With money
market rates around 4.0-4.5% these days, that's going to be tough for
most people to find.

--
================================================== ======================
Ian Pilcher i.pilcher[at]comcast.net
================================================== ======================

Armani wrote:
- quote -

The perpetual question, followed by the perpetual answer.... run the
numbers

There's a much more detailed answer here:
http://www.bankrate.com/brm/news/DrDon/20020227a.asp

This is always something I'm torn about. Intellectually, I KNOW it's
probably smarter to invest my money elsewhere, but it just makes me so
darn happy to watch the mortgage principal shrink every month...

--
Jennifer

how much do you put in 401k now? How much is already in 401k? how old
are you? Why are you moving in 5 years? Do you already have an IRA?
Do you own other stocks? Do you have other debts?

If you pay down the mortgage, the only way to recoup that cash is to
refinance, sell the house, or take cash out. The advantage to doing
this is your monthly payment would decrease, so if you stayed in house,
and lost a job, your monthly need is less.

I'm a huge fan of paying down debt. I would pay down my mortgage IF I
have no credit card debt, no car payments, no student loans or other
payments required. I would also need to have my IRA fully funded and
atleast 10% going to my 401k as well. If the IRA and 401k were being
over contributed (meaning $4000 to IRA and at least 10% to 401k), then
paying down the morgtgage is an option.

Hello,

The wife and I have a quandary, albeit, a pleasant one. We are buying a
house with 20% down and a 30-yr fixed rate mortgage. We can afford to
make substantial extra principal payments each month. But should we? We
don't expect to be in the house for more than 5 years. Should I build
equity in the house or should I divert the extra principal payments
into other investments (401k, IRA, stocks)?
When time comes to sell the house will it matter how much equity we
have in the house? My wife and I are fairly disciplined with our
savings and investment so the possibility of squandering the extra
principal money is not a concern. We are just not sure if aggresively
building equity in our house is the best option in what seems to be a
slowing RE market. Also, we are old-school and not the types to use
equity in our home as a bank.
Thanks.