Question: I am thinking about doubling my mortgage payments to quickly build equity >in my home. In addition, I want to purchase another home in two years. It >is unlikely that I will have the first one payed off.
> My question is simple: Should I save the money in a savings account in >anticipation of the down payment of the second mortgage or should I pour the >extra money into the first mortgage to build equity into the home? Stated >another way, can I use the equity built up in the first home as a down >payment for the second loan?
Answer: If you dump the money into your home it’ll just sit there (it won’t increase the value of the home, it’ll just add equity equal to the amount you dump into it). Yes you can get it back out by taking a second or refinancing, but it’ll cost you in the form of closing costs.
On the other hand, if you put the money in an interest bearing account it’ll earn interest and you can use it to put money down on the second home. The value of your home will still grow. The equity in your home plus the funds in the account will exceed the equity of the former plan due to the interest you get. Of course when you go to purchase the second property you may want to leave it in the account and finance as much of both homes as possible. That would be my choice.
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