Hello,
Because of family needs, my wife, child, and I need to move, so planning on buying another house and selling our current house within the next few months. Because current interest rates are high, at 7.5%+, we want to balance the goals of long term investment returns, paying off the mortgage for the new house, and reducing liquidity risk in the case our income is interrupted.
We would love to have some feedback on our plan here!
Our ages: late 30's+early 40's, 1 child at 2 years old
Our annual income:
Current monthly expenses: ~$12K
Current house: estimated to net proceeds of ~$250K after being sold and paying off existing mortgage. Current mortgage all in is ~$3100 per month.
New house we want to buy: $1.0M purchase price. We will pay a down payment of $235,000, resulting in a mortgage loan of $765K at ~7.5%, resulting in a monthly payment of ~$7,000 with PITI plus HOA fee.
Investment Portfolio
Taxable: $1.7M
Tax deferred and roth: $1.5M
Overall stock mutual fund allocation: about 65% US stock index funds, 35% international stock index funds
Money market fund earmarked for down payment on new house: $235K
529 account: $80K
IBonds: $45K
All of this totals to a net worth of ~$3.5M including current home equity.
Our plan is:
1) Buy the new house
2) Sell the existing house within a few months, use the ~$250K of net proceeds towards the mortgage on the new house, which brings the new mortgage down to $515K
3) For $515K mortgage remaining at 7.5%, we plan to pay at least an additional $5K per month, for a total of $12K per month. At this rate, we will be done with the new mortgage in 5 years. Total interest paid is ~$110K.
With this plan as is, there are liquidity risk, because after buying the new house we would only have about $45K liquid left in ibonds, with all other funds in stock mutual funds. This is risky if one or both of us lose our jobs. Additionally, if my existing house sale is delayed for whatever reason, then we would have to pay both mortgages for awhile.
Selling our existing house and then buying the new house or doing both at the same time seems difficult, because our market is hot so we can't put an existing home sell contingency. Also, between our work and taking care of our child, we don't have the energy sell and buy at the same time.
So, my thinking is, that we need to exchange a portion of our taxable mutual fund portfolio to money market funds reduce risk before buying the new house. Our mutual fund with the lowest gain (a total international mutual fund) has about 15% gains. So, if we were to exchange $200K, the capital gain is 15% or $30K. With a capital gain tax bracket of 29.8% (20% federal capital gains + 3.8% net investment income tax + 6% state tax), we would be paying an additional $30K*29.8%=$9K in income taxes this year, which doesn't seem too bad.
What do folks think of this plan, from a balancing potential risk and rewards perspective? Any advice or changes suggested?
Thank you!
Because of family needs, my wife, child, and I need to move, so planning on buying another house and selling our current house within the next few months. Because current interest rates are high, at 7.5%+, we want to balance the goals of long term investment returns, paying off the mortgage for the new house, and reducing liquidity risk in the case our income is interrupted.
We would love to have some feedback on our plan here!
Our ages: late 30's+early 40's, 1 child at 2 years old
Our annual income:
- Me: ~$400K. DW: ~$300K
Current monthly expenses: ~$12K
Current house: estimated to net proceeds of ~$250K after being sold and paying off existing mortgage. Current mortgage all in is ~$3100 per month.
New house we want to buy: $1.0M purchase price. We will pay a down payment of $235,000, resulting in a mortgage loan of $765K at ~7.5%, resulting in a monthly payment of ~$7,000 with PITI plus HOA fee.
Investment Portfolio
Taxable: $1.7M
Tax deferred and roth: $1.5M
Overall stock mutual fund allocation: about 65% US stock index funds, 35% international stock index funds
Money market fund earmarked for down payment on new house: $235K
529 account: $80K
IBonds: $45K
All of this totals to a net worth of ~$3.5M including current home equity.
Our plan is:
1) Buy the new house
2) Sell the existing house within a few months, use the ~$250K of net proceeds towards the mortgage on the new house, which brings the new mortgage down to $515K
3) For $515K mortgage remaining at 7.5%, we plan to pay at least an additional $5K per month, for a total of $12K per month. At this rate, we will be done with the new mortgage in 5 years. Total interest paid is ~$110K.
With this plan as is, there are liquidity risk, because after buying the new house we would only have about $45K liquid left in ibonds, with all other funds in stock mutual funds. This is risky if one or both of us lose our jobs. Additionally, if my existing house sale is delayed for whatever reason, then we would have to pay both mortgages for awhile.
Selling our existing house and then buying the new house or doing both at the same time seems difficult, because our market is hot so we can't put an existing home sell contingency. Also, between our work and taking care of our child, we don't have the energy sell and buy at the same time.
So, my thinking is, that we need to exchange a portion of our taxable mutual fund portfolio to money market funds reduce risk before buying the new house. Our mutual fund with the lowest gain (a total international mutual fund) has about 15% gains. So, if we were to exchange $200K, the capital gain is 15% or $30K. With a capital gain tax bracket of 29.8% (20% federal capital gains + 3.8% net investment income tax + 6% state tax), we would be paying an additional $30K*29.8%=$9K in income taxes this year, which doesn't seem too bad.
What do folks think of this plan, from a balancing potential risk and rewards perspective? Any advice or changes suggested?
Thank you!
Statistics: Posted by smith234 — Wed Feb 21, 2024 9:37 pm — Replies 0 — Views 226
