My fiance and I currently have the opportunity to buy our first house for 200k due to a large 19k bonus that will be coming to me from my employer.
We're considering two uses for the additional money (when added to our existing savings). One is putting 25k down (12.5%) and paying off our student loans. The other is putting 40k down to avoid the PMI entirely.
These are my estimates (We have not identified a specific property yet so exact #s aren't possible):
Mortgage Rate - 3.899% 30 year fixed
Insurance - $800/year
Taxes - $3,500/year
PMI - $1,812/year
Our Student Loan Balances (All are Fed loans) - $24,668
Our Potential Student Loan Interest Remaining (if we do the minimum payment) - $4,365
To calculate the mortgage, I've been using the excellent calculator here: http://usmortgagecalculator.org/
With the above numbers, it breaks down like this:
Monthly Payment (12.5% down): $1,334
Monthly Payment (20% down): $1,112 + our current $400 student loan payment = $1,512
Difference in Monthly Payment:$178
Total Cost After 30 years (12.5% down): $459,268 + $24,668 = $483,936
Total Cost After 30 years (20% down): $440,647.89 + ($24,668 + $4,365) = $469,680
Cost Difference After 30 years: $14,255
Assuming my calculations are correct, paying off our student loans now will cost us around $14k over the life of the loan!
So what seems to be a GOOD decision short-term (paying off loans early) actually seems to be a BAD decision long-term on paper.
Given that is our first home, I don't expect to see the mortgage through all 30 years, so I'm not sure if we're really going to lose all of this $14,255. It could just be an illusion that will never come to pass?
Then again, I think of emergency situations like job loss - we can defer our student loans, but falling behind on the mortgage isn't a good option. So then it makes more to "slow pay" the student loans and enjoy the lower mortgage.
What do you all think? Should we go into deeper debt to save money over time or feel good about eliminating debt now to risk losing money long-term?