Summary: over the 3 years until I trade up to my family's next home, is it smarter to put my upcoming windfall (~$400K, earned over the next 3 years as I vest in stock) in a savings account (earning 0.75%), or, instead, use the windfall to pay off my mortgage (interest rate is 3.5%)?


  • My employer recently went public. My equity stake (RSUs) is worth about $400K after taxes (assuming the stock price stays the same as what it is now, of course - there's no way to know).
  • I'll have to stay with the company and vest in that stock to get this windfall. I'm on a 4-year vesting schedule. I've worked at the company a little over a year. Thus, it will be 3 more years until I'm fully vested. I plan to sell all of my equity stake as I vest, quarter by quarter.
  • My wife's and my plan is to move to a different city 3 years from now. At that time, we'll sell our current home and use 100% of the windfall money to buy a new home in that new city.
  • Other than our mortgage, my wife and I have no debt. I'm in my late 30's; she's in her late 20's.

What I'm struggling with right now is: what should I do with the windfall money I get gradually over the next 3 years? Here are the options I've considered:

  1. Invest in mutual funds with low risk profile.
  2. Put the money into an FDIC-insured savings account, e.g. ING Direct, at 0.75%
  3. Pay off my $395,000 mortgage (interest rate: 3.5%) on my current home

Most personal finance advice I've read says that #1 is not a good idea due to the downside risk, plus I think the stock market is probably near its peak. So let's take #1 off the table (unless you disagree? Please let me know if so.)

Both #2 and #3 are safe, and their rate of return is essentially guaranteed.

The reason I'm tempted to choose #3 is because I'd effectively see a higher return than 0.75%. (Even when considering the tax write off for mortgage interest, I'm guessing the effective return would still be something like 2.5%.)

But if I choose #3, I'd be illiquid when it comes time to go house shopping 3 years from now - the vast majority of our net worth will be tied up in our home. Maybe that's not a problem (given that we'd be selling our current home in order to buy the new one), but maybe that temporary illiquidity would cause problems? Not sure.

Which option is best? Thanks!

  • Since you seem to be confident that the stock market is near its peak, the current valuation of $400K is not really meaningful when talking about the 3-year horizon... Is it?
    – littleadv
    Feb 23, 2014 at 7:53
  • Before I answer, I'm curious why this new member's question was voted to close (3 as of now) so quickly. The Q&A can be of value, offering the alternatives, and trade-offs. Feb 23, 2014 at 13:41
  • There are real answers to give on this question. Of course they will be opinion based, but based on the acceptable risk, there are strategies and advice we can provide based on JonC's question. This question shows research and effort, and is asking for confirmation and more advice.
    – MrChrister
    Feb 24, 2014 at 14:36
  • Don't really have enough for a full answer, but I'd like to point out that being forced to sell your current house before buying a new house can result in you settling for less money than your house is really worth. If this happens, it may end up costing you more percentage wise than you saved by paying it off early.
    – Kellenjb
    Feb 25, 2014 at 2:03

3 Answers 3


First, I would want cash around the time I made the move. I would like enough for a 20% down payment, moving expenses, and enough for 6 months of mortgage payments on the existing house. This way if the house does not sell quickly, you are safe. As you approach the time it comes to move, you can work backwards on how much time you would need to accumulate that kind of money.

Second, this does not have to be an all or nothing kind of thing. Perhaps you use some of the proceeds to beef up your retirement, some to pay down the mortgage, and some for savings. You could be very wrong about the market, even so it is a wonderful opportunity to add to your nest egg at such a young age. My own self prefers to do things in ratios. In your case I might do 10% of the proceeds in for retirement, 10% for savings, and 80% for mortgage reduction. (You may want to also add some charitable giving.)

I really like paying down the mortgage. Not only is it a risk less investment, it reduces your personal risk.


A few points to consider -

  • littleadv is spot on, you can't count on the $400K until it's in your hand. I've personally seen such sums vanish before vesting.
  • The choice of needing to sell before buying or somehow arranging alternate financing is unnerving. I really prefer having the 20% downpayment at the ready, and only have to tell the new bank you're selling soon after moving to the new house.
  • Prior bullet aside, you're right to stay conservative, and paying off the mortgage as you vest isn't too bad an idea, so long as you're prepared for the alternatives, e.g. ending year 4 with say, $100K left, and whatever other funds you have.
  • Mixed in with all of this, be sure you are depositing the maximum to get the 401(k) company match.
  • Be mindful of those who suggest that 3.5% is effectively 0 after taxes and inflation. The very long term trend of the market (read that as S&P) is 10%, but with an unnerving 14% standard deviation. Money due to come out in the short term should be kept safe, and the 3.5% return you'll see is as good as safe gets. If you were staying put, and asking 'pay mortgage vs investing' I'd offer a bit of a different answer.

Welcome to Money.SE. This is not a discussion board, but rather, a site to ask and answer personal finance questions that are factual in nature. Your question is great, in my opinion, but it's a question that has no answer, it's opinion-based. So I'm slipping this in to help you, and suggest you visit the site to see the great Q&A we've accumulated over the years.

  • See my other comment: I see this as answerable if we say "if you accept a lot of risk; doing this. If you would freak out losing any money; do this" OP did their research, so perhaps the best answer will just confirm their research. I think what OP is missing is their own understanding of acceptable risk. Once it is pointed out, the choices are made.
    – MrChrister
    Feb 24, 2014 at 14:41
  • Agreed, glad to see this reopened. Thanks for the support. Feb 24, 2014 at 15:33

You may have to both save your windfall in a savings account and use it to pay down your mortgage.

Almost every mortgage has some sort of pay-down option that allows you to pay off a percentage of the original principal without penalty. Any amounts above that will be penalized, most likely by the amount of interest the lending institution would have collected. Ask your lender what the penalties are and what penalty-free pay-down options you have. Knowing that and how much you will receive each quarter by selling the company stock will tell you how much of your money you need to put against your house and your savings account.

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