I’ve been meaning to blog about this for quite some time, and then over the weekend a fellow reader got it out of me in an email exchange :) Which is copied & pasted below for your pleasure/learning/entertainment. Nothing incredibly Earth shattering or anything, but nonetheless something to keep in mind if you’re debating between some serious decisions.
Here’s the email that started it:
I bought my house a couple years ago, and I love it. It is dated and moving into the the need-replacing stage, but with some TLC, it could be my dream home. Given the market timing of my purchase and unfortunately the rush into buying that I had to do – life happens, sometimes, doesn’t it? – I am about 10% upside down.
I’ve been wrestling with myself lately whether I should be putting my extra bits of money into the mortgage to both get right-side up and remove PMI, or if I should save up for home improvements, like renovating the bathrooms and kitchen and repairing the HVAC system. At this point, everything is usable and safe, but it’s dated/ugly and there is existing damage from previously leaky faucets.
I will put in sweat equity, but I am still looking at a couple thousand per renovation, and the only ROI I see is personal – my joy when I see it and no embarrassment when having people over. I have no plans on moving anytime soon – assuming life cooperates – and while the renovations would increase home value, I know it’d be a small fraction of what I put into it.
GREAT question indeed – and one I ponder just about 3 times a day, haha… We, too, are in some need of minor repairs and especially cosmetic ones (our cupboards are from the 80’s and are all a nasty yellow, including counter tops) and I go back and forth between killing our mortgages and making improvements.
But yeah, tough call and pros/cons either way. I think what it really comes down to is personal preference and what excites you the most. If that means a nicer inside both for everyday pleasure and when guests come over (and of course future selling/renting one day), then I’d go that route. But if you’re like me and just hate those damn mortgages, I’d switch to that one instead – esp if it saves you more money continuously each month too by ridding the PMI.
The good part here is that you can’t really lose with either route as they both pay dividends going forward, ya know? So my advice (which is limited since I don’t know you or how you think/operate much, or at all, haha…) is to do whatever makes you happy right NOW. And if that switches in a few months, then switch where your money’s going too! I firmly believe you can’t go wrong when doing what’s the most exciting at the given point in time, and in cases like these it’s easy to keep switching where your money’s routing too.
I do it all the time with my mortgage plan I linked to up there – some months I’m dead on w/ paying $2k extra, and others I’m not in the mood and would rather use it towards saving or investing, or the dreaded home repairs that happen out of the blue like our water heater dying :( Which is the worst cuz those aren’t cosmetic at all! So def. make sure you have an emergency fund set up too for all that kinda stuff, regardless of where you’re putting your future money – that’s important.
And then this was her response back :)
Thanks so much for responding. This is going to sound really silly, but I never really thought that I could re-purpose the money! For some reason, I’ve thought that I *have* to stick with whatever choice I make. Although, if I did put money directly into the mortgage or a home improvement, I am stuck with that choice, but if the money is sitting in an account, I can change my mind whenever. And of course, I change up future money’s direction. I don’t know why that never occurred to me. Weird!
I completely understand the cabinet disgust – I have the original 70s brown cabinetry in the kitchen and baths, complete with scratches and dings from decades of use. My parents own a cabinet shop, and when my dad helps me repair one of the cabinets, he razzes me about having such crappy cabinets when I know people. I remind him that I have to save for the upgrade.
Way to go on the extra mortgage payments, you’re an inspiration! I round up to the nearest hundred each month but haven’t had a chance to do more. I whole-heartedly agree with the house emergency fund. I had a home warranty for the first 3 years and they replaced the main breakers and the water heater, repaired the furnace, and did some plumbing repairs to both tubs.
Now that the “major” stuff is out of the way, I am my own home warranty, paying a savings account the same amount as I was paying the home warranty company. Unfortunately, I still have to come up with money for stuff that a home warranty wouldn’t cover, like the roof I replaced last year, the attic insulation I had blown in, and Solatubes that I had installed when the roof was replaced. (Randomness: Solatubes are amazing! I have natural (and free!) sunlight in my windowless bathroom and dark hallways. I love them!) I did some hardcore cringing when I looked at how much money went into the house last year, but I remind myself that I love my house, and renting a comparable place would cost a couple hundred more.
As much as I despise the looming cloud of debt, I think the home renovations would yield more personal happiness – I’d have the pride of sweat equity and a house matched perfectly to my tastes. So to compromise with the rational side of the brain, I’ll probably divvy up the bits of money with a little more towards the mortgage and the rest set aside for home improvements.
Thanks again. If I get to any of the renovations in a reasonable time, I’ll send you an update on whether it was worth it or not :D
That first line up there is key: “I never really thought that I could re-purpose the money.” Most of us DON’T when we’re in the thick of the decision-making like that, especially the bigger picture things. Or at least I don’t. I always think that whatever’s happening right this instant will continue on forever like a big ol’ dummy :) Which is actually pretty amazing that I can plan for the future financially no problem, but am at a total loss when it comes to anything else!
Anyways, good food for thought. Again, nothing too new here, but do know it’s okay to change your mind as time and life presents themselves to you. You can only fully understand what’s going on *today* since we don’t have any crystal balls for later, ya know? And it’s not like anyone’s going to tell on you anyways – most people are too wrapped up in their own problems to even notice ;)
(Photo by Tax Credits)