Answers (4)
- sunnyview
- Contributions:26916
Do not leverage your retirement at 58 to buy a house. There may be pros and cons, but with mortgage rates where they are now, I think it would be better to keep that money working for you and take the mortgage deduction on your taxes.
Pay yourself first and borrow the money you need for a mortgage cheaper than you can work it in a more flexible retirement nest egg with a higher % return than a primary residence.
Pay yourself first and borrow the money you need for a mortgage cheaper than you can work it in a more flexible retirement nest egg with a higher % return than a primary residence.
- Adam R. Cohn, "palmbeachmortgage"
- Contributions:198
Regular mortgage.
- Eric Vander Werff, "Eric Vander Werff"
- Contributions:10
Hi, I can't give you advice on whether or not to tap your retirement for a home purchase but I can say that with Fixed rates and APRs in the 2's and 3's - its definitely a fantastic time to lock in the rate of a lifetime. Almost no home loans come with prepayment penalties now so you can always pay down your mortgage down the road if that is something you think you want to do.
What a few of my clients have done in this situation is to split their loan into a first and second mortgage, with the second being the amount they expect/want to pay down a few years down the road. This way, they get the larger chunk into a fixed and the smaller amount - that is to be paid down in the future - into a variable equity line.
Just for illustration - Lets say someone borrows a total of $300,000 and say split it into a 30 year fixed rate $200,000 first mortgage with an APR of 3.375% and payment of $885.44. They take a 2nd out simultaneously for $100,000 at say 4% APR and have an interest only payment of $333.33/mo vs. a $300,000 at 3.375% APR with a payment of $1327.54/mo. They don't really want to pull the funds out of the retirement fund today - lets say because they are currently earning 7% return on their fund due to a strong portfolio mix.
Once they do retire, they decide to indeed pay off the 2nd mortgage. If they had taken out a 1 loan of $300,000 and pay down a large chunk, they would still have the same payment of $1327.54 vs the lower $885.44 payment that they can now easily afford in retirement. If they had taken out just one loan, they would have to refinance at current market rates (likely higher) to get their payment lowered. Just a thought, hope that helps!
What a few of my clients have done in this situation is to split their loan into a first and second mortgage, with the second being the amount they expect/want to pay down a few years down the road. This way, they get the larger chunk into a fixed and the smaller amount - that is to be paid down in the future - into a variable equity line.
Just for illustration - Lets say someone borrows a total of $300,000 and say split it into a 30 year fixed rate $200,000 first mortgage with an APR of 3.375% and payment of $885.44. They take a 2nd out simultaneously for $100,000 at say 4% APR and have an interest only payment of $333.33/mo vs. a $300,000 at 3.375% APR with a payment of $1327.54/mo. They don't really want to pull the funds out of the retirement fund today - lets say because they are currently earning 7% return on their fund due to a strong portfolio mix.
Once they do retire, they decide to indeed pay off the 2nd mortgage. If they had taken out a 1 loan of $300,000 and pay down a large chunk, they would still have the same payment of $1327.54 vs the lower $885.44 payment that they can now easily afford in retirement. If they had taken out just one loan, they would have to refinance at current market rates (likely higher) to get their payment lowered. Just a thought, hope that helps!
- Martha Matthews Vasquez, "Tampa Bay Beach Pro"
- Contributions:9
This is a financial planning and tax issue so I can't really help you. Ask your mortgage professional what the difference in interest rate and costs would be.
Traditional Mortgage or Mortgage from Retirement Funds?
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