Could you sell your old house for what your equity is? Many old houses on paper look really good but selling them for that amount is sometimes difficult. If you are planning on keeping the old house and renting? it or selling. Do you have money in the bank for extras that always happen when building?

As far as taxes you need to set down with your last years taxes and do a itemized deduction calculation based on your projected mortgage, taxes, etc.

Math is great is for these type of questions, and so I did some for you. At the current 3.375% rate for a 30 year mortgage, the total you pay in interest over 30 years is $591 per $1,000 (in other words your total payments are $1,591 for every $1,000 you borrow). To put this into perspective, ignoring any tax implications, you would need to get 1.565% on your savings account to end up with more money than you are paying in interest.

Personally for that little amount annually ($19.70 per year per $1,000 if you straight lined the interest) I would rather have the cash, even if I didn't invest it. Remember while our home is, and should be, a place of comfort and safety for us, it is not exactly without serious financial risk. Houses are much more risky than most investment portfolios. You wouldn't invest in any investment that had the same risks and returns as a house. Note I am not saying you shouldn't buy a house, I am just saying think about houses as cash outflows and inflows rather than investments.

As a financial adviser I would tell you to keep the mortgage as high as you can afford and invest the money in a mutual fund that matches your risk profile, personally I prefer Vanguard funds. You will generate free money by doing this.

As for your taxes - if your new mortgage without holding out additional funds is going to get you past the standard deduction, then the entire additional funds will be deductible. I wouldn't even bother considering it to be honest, how much better do you need than 1.565%?

You've asked the great question: Does it make financial sense?

Only you and your advisors can know for sure. For example, what is your current family income? Does it put you at a level where mortgage deductions will begin to phase out?

What does your "rainy day" fund look like? You're young, and can probably weather any economic storm to come, but what do you need to protect you and your family in the event of something like the Great Recession of 2007?

So- stay liquid with that portion. Sure, it doesn't earn a ton (if any) interest, but trust me on this- when you need it, and it's there, you don't care. Nothing erases the idea of "no earnings" faster than knowing that if push came to shove, you can pay your bills for a certain amount of time.

Conventional wisdom says leave a 6 month cash "cushion" to live on. So- if you have a very big mortgage, you'll have to put that much more aside, to protect both your family and your asset. And be aware that that asset, itself, could be a money loser for years, in the worst of "dips". It's happened before, it will happen again.

Are you and/or your wife employed in any industry vulnerable to economic downturns? If you lost your job due to huge swings in your industry/consumer demand etc- would you rather have a big mortgage OR a big reserve fund?

I'm a big believer in liquidity for a year, and one of the ways we do it is to keep our "monthly nut" small. No debt, save for a small mortgage against big equity. Great credit lines. We can weather any financial storm, with this approach.

Finally, do make sure you're diversified. This is one place that some of the cash from your build could help. Just be smart, judicious and stay true to your own goals.

Hope you've made your decision as interest rates are going up. And do be aware that one of the proposals for the Repubs' new tax plan is to double the standard deduction, which would render the mortgage deduction essentially useless for most people except very high income folks.

We did a 15 year mortgage on a rental home and put every extra penny towards it. The day it was payed off it had beyond tripled in its worth- it's in California. I had just turned 40 and that was one of my happiest days, it felt great.

Paying a mortgage off sooner is fine if that's your preference, but it limits how much money you have to do other things (including buy more real estate, if that's what you like to do) or to invest elsewhere to have a risk-diversified portfolio.

And, of course, the presence or absence of a mortgage, or the balance of same, has no effect on the value or appreciation of the property. If it went up, it would have done so with or without a mortgage. Same is true for going down, which would have happened to this property and others many owned 10 or so years ago.

I would have my cake and eat it too. Wait, you can't do that. Or can you?

hehehehe...

I would find my "happy medium" as I like to call it and do the best of both. In other words, don't put all the cash down (that way you still have a nice stash) and do a 20 year note opposed to 15.

For me personally, I want zero debt, including my home paid off. So that is my #1 goal. The stock market and home values will tank again some day but when that happens and I don't have to make a mortgage payment then I wont have to worry. Plus, I'll have nice "stash" to hold me over...

I had a variable rate mortgage back when they were the worst thing you could get. It worked out GREAT for me, because I could afford it even in the worst of time. During the low interest rate years I made the same payment as when the interest was high. If I had money left over at the end of the month, I added that to the payment. We had it paid down to about $10,000 within 10 years. As time went on the mortgage companies sold and resold the mortgage. One of them refinanced my remaining loan (about $7,000) over another 30 years. This made my principle and interest payment almost nothing although taxes and insurance grew way out of proportion to the rest of the country. So my payment actually grew. After 25 years we still owed about $7k. I don't feel obligated to pay it off. My last two houses I paid cash for, but again, I don't feel obligated to own them outright. I just lowered my housing needs. It's a lot simpler to buy a house without a bank involved.

The OP has no doubt made up their mind by now. but to respond to today's posters. Having changed our 30 year to a 15 after 10 years thinking only about shortening the time I should have left it at 30. The interest was similar so only the length was different. If I had left it as 30 years if I had financial problems the lower payment would have allowed more money for other things. As it was with continuing paying additional each month the house was paid off in 18 years rather than 30. The second poster mentioned that they had a variable interest rate. Having seen in California where many lost their homes because the interest rates made their payments impossible I could never suggest a variable interest rate. One downside with paying off your house is that not having that debt can lower your credit rating. Mine dropped 5% and AAA increased insurance rates by 10% because of the drop.

As the original poster I am still following this thread. I still have the option to go either way as were still under a construction loan. I'm leaning towards paying as much out of pocket as I can while leaving a comfortable emergency stash. Financing over 30 or 20/15 will depend on whether our current home sells. Thx for the input!