Background: I am married with no kids (but anticipating them at some point) and no debt at all. My spouse and I have an emergency fund, both fully fund our retirement accounts, and are also keenly interested in long-term investment. We current rent a small apartment as inexpensively as possible but are looking to purchase a house in our high cost of living area. Our down payment will be at least 20% of any house we would consider purchasing for the sake of our own comfort level with debt and monthly costs. Our down payment fund includes extra to cover closing costs completely.
Question: Given that we have fully funded a down payment we are comfortable with, should we allocate additional savings from the point that the down payment is funded towards making that down payment larger or move on to long term savings (we're thinking of investing in an S&P 500 or total market index fund) that could later be used to pay things such as future kids' college educations or add to our retirement?
In favor of investing, we see:
- While rising, mortgage rates are still relatively low and the return on investment in an index fund is likely to be higher
- The stock market, while rising, is cheaper to invest in now than it was at its peak. There are worse times to get in the market, especially since this investment would be intended to be held quite long term.
- You can't gain back compound interest you didn't earn, so starting early helps.
- Low rates right now mean savings accounts, etc. are really not performing in any significant way
In favor of amping up the down payment, we see:
- Total lower monthly cost on the mortgage means we'll have more money for covering the cost of future children as they grow. It also means we can potentially save more each month in the future
- Total lower monthly cost makes it less likely that, if some dire financial situation hits, we'll have problems with our mortgage.
What are we missing?