Ask Money

A Wedding and a Mortgage

Chris Farrell May 28, 2008

Question: Hi Marketplace, I’ve got a couple good things going for me right now. I just got a new job that pays a lot more than my old one, and I’m about to get married. Instead of having a regular registry for pots and pans, we’re asking our guests for donations towards our “Mortgage Fund” to try to put a down payment on a place to live. Now, we’re not quite ready to get a house…but we’re thinking within the next year or so we’d start looking (pending, of course, what the market does).

My question is this: what’s the best way to “park” our money for a year while we wait to buy a house? Is there a “Mortgage-specific” type of savings account that might yield a better return than a CD? Thanks for your time, Iseri, Chicago, IL

Answer: Congratulations on all the good things happening to you. I wonder if your idea is a sign of the times? A lesson of the housing boom and subsequent bust is that first-time homebuyers should buy themselves a margin of safety by putting in a greater downpayment than was necessary during the go-go years. It’s an intriguing idea.

Yields are razor thin these days. But I wouldn’t reach for yield with this “home” money. (For a harsh lesson on the cost of reaching for yield just look at the busted auction rate market. The stuff was marketing as safe, but higher yielding short-term debt, and now investors can’t get their money out.). I would stick with a brand-name money market mutual fund with very low fees and no charges for putting the initial investment in and adding sums later into the fund. I would pick a conservative money market mutual fund option, one that invests heavily in U.S. Treasury bills, short-term federal agency debt, and blue-chop commercial paper.

Good luck.

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