So, my wife and I inherited her grandfather’s property around 5 years ago. It was pretty beat up, but we decided to take out a home equity loan in 2021 to fix it up (air conditioning, new pipes, appliances, flooring, you name it) as we were gearing up for our first kiddo. We’ve paid off about 25% of the loan, and now with another little one on the way, we’re thinking about our future. Retirement, setting up our kids financially, travel plans – all that good stuff. We don’t live in a crazy expensive area, and our home is probably worth around $850k. We’ve got about $100k in mutual funds, plus $16k each in Roth IRAs. But, there’s also student loans, credit card debt, and some auto debt to family, totaling about $25k. Our home loan still has $65k to go, with a 2.74% interest rate. Do you think it’s a good idea to use our home equity for investing? Maybe throw it in savings accounts? Or even use it to fund 529 accounts? Any tips would be awesome. Thanks to everyone who made it through this, have an awesome weekend!
Response from THE MONEY MINDER:
Hello There,
Hi there,
Firstly, congratulations on your growing family and on taking steps to renovate and upgrade your inherited property. It’s always a rewarding feeling to see your hard work pay off, especially as you prepare for the arrival of your next child. It sounds like you’ve made some smart financial decisions so far, and now you are contemplating how to make the most of the equity in your home.
Given your current financial situation, it’s essential to look at the big picture and prioritize your goals. Paying off your existing debts like student loans, credit card debt, and auto debt should be your primary focus. These debts likely accrue interest at higher rates compared to your home loan, so allocating your resources to pay them off will save you money in the long run.
Once you’ve tackled your debts, you can consider using the equity in your home for other financial goals. Funding 529 accounts for your children’s education is a great idea, as it allows you to save for their future education expenses while enjoying potential tax benefits. Additionally, you could consider investing in diversified portfolios for long-term growth or contributing to retirement accounts to secure your financial future.
Remember, it’s crucial to strike a balance between investing for the future and maintaining a comfortable financial cushion for unexpected expenses. Assessing your risk tolerance and financial goals with a professional financial advisor can help you create a tailored financial plan that aligns with your priorities.
All the best from THE MONEY MINDER. Have a great weekend!
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