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Old 05-13-2019, 04:40 PM   #41
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And that extra cash you used for the down payment could've gone towards payments for a few years instead. Leverage your money for those few years.
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Old 05-13-2019, 05:02 PM   #42
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I don't get it... why pull money out while DW is still working and your marginal tax rate is 27% (22% fed and 5% state)? Just get a slightly larger mortgage and do withdrwals once DW retires and you are in a lower tax bracket.

But we appreciate your contribution to the operation of the country.



As I stated above, 401k withdrawls are required to make the new mortgage payments. We don't have the bandwidth in our budget to pay for it. And larger mortgage means more interest which is, like tax, money you'll never get back. Our real fed rate after deductions should be in the 16% range. DW will not retire for at least 3 more years.
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Old 05-13-2019, 05:33 PM   #43
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I get the feeling you can't afford this second house and you're making it "fit" because you fell in love with it.
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Old 05-13-2019, 05:41 PM   #44
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I get the feeling you can't afford this second house and you're making it "fit" because you fell in love with it.
We don't know that... we do know the OP will sell the house he lives in now when his DW stops working and they will put that equity towards the house they are buying now.
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Old 05-13-2019, 05:44 PM   #45
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We see it is simply re-allocating assets (and yes, paying some tax and interest that we wouldn't otherwise have to). Much like I have done for many, many years buying, and occasionally selling vintage cars. I tell my friends "I can't drive my mutual funds around on sunny days with the top down". Not only have never lost a dime doing that, I've made money on every car I bought/sold. And I see waterfront property as a very sound investment.

But you are all entitled to your feelings..... ;-)
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Old 05-13-2019, 05:44 PM   #46
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We don't know that... we do know the OP will sell the house he lives in now when his DW stops working and they will put that equity towards the house they are buying now.
And I'm positive nothing bad will happen for the next 3 years that would cause his cash flow, equity or investments to tank.
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Old 05-13-2019, 05:56 PM   #47
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Good luck. Iím curious why itís such a good deal? Why hasnít it been snatched up already?
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Old 05-13-2019, 05:57 PM   #48
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As I stated above, 401k withdrawls are required to make the new mortgage payments. We don't have the bandwidth in our budget to pay for it. And larger mortgage means more interest which is, like tax, money you'll never get back. Our real fed rate after deductions should be in the 16% range. DW will not retire for at least 3 more years.
You said earlier you were putting 60% down, and would have something like $40-50K cash left. Now you are dipping into that extra money to put even more down.

I don't know what the selling price is, but let's say it's $500K. That means you're putting $300K or more down, and financing $200K or less. What I and I think pb4 are suggesting is that you only put 20% or 40% down. This would give you an extra $100K or $200K of cash. You can make mortgage payments out of that for the next few years, until your wife retires and you sell your other house, without having to dip into your 401K early. Invest that cash in something like VG Prime MM which is getting around 2.5% right now, not all that much lower than mortgage rates, which are something like 3.5 or 4%, right? It's true you don't get mortgage interest back, but it's not that much interest, only costing you 1 or 1.5%.

Your choice. I just think that when you are temporarily cash poor, a mortgage is a good solution to leverage your money.
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Old 05-13-2019, 06:00 PM   #49
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As I stated above, 401k withdrawls are required to make the new mortgage payments. We don't have the bandwidth in our budget to pay for it. And larger mortgage means more interest which is, like tax, money you'll never get back. Our real fed rate after deductions should be in the 16% range. DW will not retire for at least 3 more years.
But wouldn't you be better off to only put 25% down rather than 40% and use the 15% that you would have otherwise used down to cover the first 3 years of mortgage payments without having to dip into your DW's 401k for mortgage payments? Then replenish cash with 401k withdrawls once your DW stops working and you are in a lower tax bracket.
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Old 05-13-2019, 06:20 PM   #50
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Good luck. Iím curious why itís such a good deal? Why hasnít it been snatched up already?

I think I know why. If it all goes through, I let you know my thoughts.
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Old 05-13-2019, 06:40 PM   #51
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But wouldn't you be better off to only put 25% down rather than 40% and use the 15% that you would have otherwise used down to cover the first 3 years of mortgage payments without having to dip into your DW's 401k for mortgage payments? Then replenish cash with 401k withdrawls once your DW stops working and you are in a lower tax bracket.

You and runningbum both have suggested the same thing. Interesting idea, thanks.



I ran some numbers 45% down which is what we are modelling now, and a 26% down model. In the 26% model, we will pay about $8500 more interest in 3 years but will have cash to pay that mortgage for 3.5 years. And of course we would not have touched DWs 401k.


In the 45% down model the incremental 10% tax burden (paying 22% instead of 12% as we would hopefully after DW retires) is about $6100. We would have removed 13% of DWs 401k balance today (which as I said in total is only 20% of our overall portfolio).

That, and with only DW working now, we may hit a limit on how big of a 2nd mortgage the bank will give us..

Thoughts?
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Old 05-13-2019, 06:45 PM   #52
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^^^ Have you considered interest earnings on the cash not being used for the down payment and reserved for that 3 years of mortgage payments.... VMMXX is paying 2.47% currently so your true cost is your mortgage rate less 2.47% for that pot of funds.
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Old 05-13-2019, 06:56 PM   #53
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And I'm positive nothing bad will happen for the next 3 years that would cause his cash flow, equity or investments to tank.
You still have no idea if the OP can or cannot afford this house. Saying he can't afford it is really not your call or mine either.
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Old 05-13-2019, 07:02 PM   #54
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Now this. DW just comes into the office and says "What about my Roth IRA?". She has one that is in the "noise level" in terms of % of portfolio, but some Googling and it looks like she can withdraw from it penalty AND tax free. It would pay for the 45% down model for almost 28 months.
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Old 05-13-2019, 07:22 PM   #55
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You still have no idea if the OP can or cannot afford this house. Saying he can't afford it is really not your call or mine either.
He's raiding a 401k to pay for a house. How many people have to say that is a bad idea? I guess the fact that we don't know makes that ok.
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Old 05-13-2019, 07:29 PM   #56
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Now this. DW just comes into the office and says "What about my Roth IRA?". She has one that is in the "noise level" in terms of % of portfolio, but some Googling and it looks like she can withdraw from it penalty AND tax free. It would pay for the 45% down model for almost 28 months.
But then that money is no longer tax-free for life like it is in the Roth. That Roth may be small now but once you are in ER in a low tax bracket before SS starts you may ne adding to with with Roth conversions from the 401k or a tIRA.

But tapping the Roth is not a bad relief value if the SHTF.

I'm not sure if all these financial gymnastics are because you are scared of having another mortgage or whether you are stretching too much for this purchase.
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Old 05-13-2019, 08:05 PM   #57
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Here's what I would do:
1) Not buy it if I had any thought that it would put my future retirement at risk
- OK, moving beyond that:
Remember - when you have money and income and the economy is good, it is easy to borrow. If things turn bad, and/or you don't have a job, then it is very difficult to borrow. Given that:
1) Borrow as much as you can while still keeping the payments under control
2) Use the money that you would have used for a down payment as a fund for loan repayment over time.

As time progresses, if you think that you have too much cash and/or want to pay it down quicker, do so....

ETA: Think of it as a relatively inexpensive option/hedge.
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Old 05-14-2019, 05:51 AM   #58
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Now this. DW just comes into the office and says "What about my Roth IRA?". She has one that is in the "noise level" in terms of % of portfolio, but some Googling and it looks like she can withdraw from it penalty AND tax free. It would pay for the 45% down model for almost 28 months.
I'd be running a spreadsheet on the various scenarios, being sure to include all factors like being able to invest money you have earmarked for future mortgage payments, the loss of tax free growth if using the Roth, and the higher tax rate if using 401K money for mortgage payments or the down payment. You have to run your own numbers, but I'm guessing that taking out a larger mortgage works out best.

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I'm not sure if all these financial gymnastics are because you are scared of having another mortgage or whether you are stretching too much for this purchase.
I wonder that too. There seems to be a very negative bias against a mortgage for some reason, but at today's rates I still view it as a great leverage tool, when needed. This situation seems to be one of those times to me. Why so reluctant to use it? Do you really favor paying extra in taxes over using a mortgage? To me the T word is worse than the M word.
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Old 05-14-2019, 07:10 AM   #59
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He's raiding a 401k to pay for a house. How many people have to say that is a bad idea? I guess the fact that we don't know makes that ok.
I am with corn.

I hope it works out for OP, but he seems to be confusing assets with consumption/lifestyle (see quote about unlike vintage cars, you can't drive mutual funds on a sunny day).

Probably many more in our culture view things this way and I am the oddball.

I guess following the likes of The Millionaire Next Door, has me on a heightened awareness for this sort of thing.

We all have different values/motivations. We could all look at OP's results 10 years down the line and all come up with very different conclusions on whether it was a good deal or not.

OP -- In all seriousness, thank you for sharing and not getting outwardly annoyed with the comments. I do find it interesting. It helps me to expand my thinking and understand, at a deeper level, the thinking of others.


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Old 05-14-2019, 07:10 AM   #60
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There is no reluctance to getting a mortgage (now), and I see your point about low rates, use it and make avoiding diminishing the 401K a priority. And for the Roth, the loss of tax free growth, but that whole account is less than 2% of portfolio.


Relative to the mortgage, I am struggling with biggest mortgage and save all cash/pay mortgage with cash and burn all cash as down payment, smallest mortgage and start pulling from the 401k and/or Roth day one to pay mortgage. And as usually is the case with me, I am settling somewhere in the middle. I could keep a good pile of cash, and pay the mort costs with a combination of all three; cash, 401K and Roth and reduce the monthly hit on each as opposed to using just one.

As for re-investing the cash that sits to pay the mortgage, it really isn't all that much $$ and having it in a 1.99% Savings account is good enough for me. Again, we are looking at everything across a 3 year time frame.


Thanks again for all the insights....
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