Getting a new mortgage when retired.

[Looking4Ward]

That's the way to go. But when you sit back and think about it, it is a bit stupid... all form and no substance.

Oh, it's absolutely ridiculous.

 

[rayvt]

I think it's a case of making the guidelines/rules for the most prevalent case. Such a rule will not be applicable to the outlier cases like a retiree with large retirement funds.

There just aren't that many of us, percentagewise.
The people in this forum, and on the early-retirement.org site in general, are not typical. We are abnormal, but in a good way. ;-)

You make the rules that account for the 95%, not the 5%.

 

[Koolau]

That's the way to go. But when you sit back and think about it, it is a bit stupid... all form and no substance.

Nobody ever accused them of being smart. Just look at our discussion of opioids. (Baby with the bath water comes to mind but YMMV.)

 

[doneat54]

Back on this... finally got some (eye popping!) quotes from builders. Crazy money, but adopting that BTD mentality and want to see if we can make this work. Wondering if anyone has other financing ideas.

We sold our previous home (living full time in what was our second, lake home) in 2022 and have parked those proceeds in a brokerage account since. What we are trying to avoid is taking it over the table in taxes by raiding the portfolio which appears to be in very good shape for our long term plans. So looking for tax free funds to use, and take a mortgage to cover the rest. And we are thinking of raiding our Roths for tax free money in whole which represents only about 4.8% of the portfolio today.

So as percentages of what we *think* the new house will cost, here is what we have:

Tax free cash from previous house sale: 44% (that is what is left after paying off the existing lake house mortgage as it will be demo'ed)

ROTH IRAs: 11%

Needed from mortgage: 45%

It would be the biggest mortgage we have ever had, about twice the current one, but the incremental cost will be small, and about half DW's SS that we will start taking next year (and interest will give us some tax relief?). Although we will probably be overinvesting in the property in terms of the current house market, it all seems do able and the retirement model with the new SS draw/date holds up.

Fidelity offers a portfolio based line of credit which I thought might be used as buffer, "Oh ****!" funds if needed, but I haven't looked into all the details on that yet.

I did establish a monthly transfer into our home bank from FIDO. That, combined with DW's SS, should be plenty to get approved for a the mortgage we are looking for based on what others have said they have done above.

Thoughts??

 

[cpaBJB]

I think the portfolio line of credit is a great idea, especially since it's variable and we'll likely see rates decline over the next few quarters. Best rates I have found were from Interactive Brokers, currently they're at 5.83% for 100k-$1M Margin Rates and Financing | Interactive Brokers LLC

The rate difference was enough for me to move a good portion of funds from Fidelity and Vanguard a few years ago.

 

[ncbill]

Back on this... finally got some (eye popping!) quotes from builders. Crazy money, but adopting that BTD mentality and want to see if we can make this work. Wondering if anyone has other financing ideas.

We sold our previous home (living full time in what was our second, lake home) in 2022 and have parked those proceeds in a brokerage account since. What we are trying to avoid is taking it over the table in taxes by raiding the portfolio which appears to be in very good shape for our long term plans. So looking for tax free funds to use, and take a mortgage to cover the rest. And we are thinking of raiding our Roths for tax free money in whole which represents only about 4.8% of the portfolio today.

So as percentages of what we *think* the new house will cost, here is what we have:

Tax free cash from previous house sale: 44% (that is what is left after paying off the existing lake house mortgage as it will be demo'ed)

ROTH IRAs: 11%

Needed from mortgage: 45%

It would be the biggest mortgage we have ever had, about twice the current one, but the incremental cost will be small, and about half DW's SS that we will start taking next year (and interest will give us some tax relief?). Although we will probably be overinvesting in the property in terms of the current house market, it all seems do able and the retirement model with the new SS draw/date holds up.

Fidelity offers a portfolio based line of credit which I thought might be used as buffer, "Oh ****!" funds if needed, but I haven't looked into all the details on that yet.

I did establish a monthly transfer into our home bank from FIDO. That, combined with DW's SS, should be plenty to get approved for a the mortgage we are looking for based on what others have said they have done above.

Thoughts??

current fidelity pledged line of credit rates (click on "rate information"):

Fidelity SBLOC

 

[ERD50]

current fidelity pledged line of credit rates (click on "rate information"):

Fidelity SBLOC

Wow! Fidelity rates for $100,000 – $499,999 are SOFR + 3.10%. And SOFR is currently ~ 4.8% down from 5.3%.

Secured Overnight Financing Rate Market Daily Trends: Secured Overnight Financing Rate Data | YCharts

In depth view into Secured Overnight Financing Rate including historical data from 2018 to 2024, charts and stats.

ycharts.com

So that's ~ 7.9%. About the same as my open (currently unused) LOC at Etrade.

 

[doneat54]

Moving along with this....

First found out that Fidelity's portfolio secured line of credit has to be against a post tax/brokerage account, can't be against IRAs, ROTH's, etc. So that is out.

Spoke with a local bank offering construction loans. Short answer is this should be no problem. Between DWs SS starting up and the monthly distributions that I set up at FIDO, she said approval is likely not to be an issue for the mortgage we want.

She said that construction loans are at a higher rate than normal pre existing home loans, roughly 7+% now vs low 6's. Not a huge deal, but I'd sure like to see them drop a bit. 75 day (max) window from lock-in to closing, so we are still out a ways. But can get pre approval now.

Milestone day today as we officially started "deconstructing" our house for a possible demo in the spring. I sold our composite decking for about 5% of what it costs new, and a guy came out and spent about 3 hours unscrewing it all and loading it in his truck. He contacted me less than an hour after I posted it for sale, followed by 15 more people in the next 2 hours, some who were willing to PayPal me what I was asking for it before they even came out. So I could have gotten more for it but so what. Buyer did all the work, it is gone now.

We have selected a builder and there are some issues with the purchased plans from the architect that hopeful can be worked out this week. The builder is supposed to be whittling the quote down a bit, but we have yet to sign. Of course, more than we wanted to spend, but the numbers all still seem to work.

Shooting to have available a 10% over the quote for "Oh S^its!", 3% of that will be in place in post-tax cash, and the rest we can yank from the portfolio if needed.

Going to be an interesting winter and 2025 most likely!!!

 

[jazz4cash]

Things falling into place. Good move to recycle the decking.

Edit: I missed what happened with the existing mortgage. Do you have to pay it off or is it still secured by the value of the lot?

 

[doneat54]

I didn't ask. The bank I reached out to is not the bank our current mortgage is at. It is at a local bank that has a specific "Construction Loan" program and decent rates. I am assuming I will pay off the existing mortgage in any case.

I'll add though the terms of this construction loan, which I found interesting. Prior to closing (there is only one closing), I have to surrender our cash to the bank (not sure exactly how). Once construction starts and the builder requests payment, they go to the lender. Our cash is used first. She said that someone from the bank will come to the site and inspect progress on the build prior to making each payment. Once our cash is exhausted, they will pay the builder from the loan. Then, for payments up until completion, we will pay interest only on the loan amount submitted to the builder. At construction complete (max 12 months), the loan automatically turns into a regular home mortgage and we pay P&I to the bank monthly.

 

[jazz4cash]

Interesting. How many inspection/payment cycles?

 

[doneat54]

Not sure. I know the builder talked about 3-4 I think.

 

[jazz4cash]

Not sure. I know the builder talked about 3-4 I think.

Seems like a significant detail. Is it based on some metric like completion of phases, % of completion, or calendar days?

 

[doneat54]

Still researching bank/loans. The builder is very familiar with the process and has given me the name/contact of a local lender. He done the inspection cycles with them before. Studying the fees from each bank, most charge a "construction loan fee", one is in excess of $7500, above and points, etc.