Hoping you guys can shed some light on this. We are retirees and are considering getting a mortgage for a new house. Our only income now is our social security checks. We had 3 rent houses and the rents were our income for about 8 years, but now we are finally selling the last of the rent houses. So, we have cash and of course stocks. We would rather not sell any stocks, but would like to leave our stocks alone and just get a mortgage for perhaps $200,000 on a $600,000 house. (that means we would be putting $400,000 down). While our cash looks good and our stocks look good. Our actual monthly income is small by comparison. Does anyone know if we could get a mortgage? I think years ago, we tried getting a secured mortgage with our stocks being the collateral, and mortgage companies just looked at us like we were insane. Has anyone done this? Any tips? So, the house we would buy would be $600K, down payment of $400K, mortgage of $200K. Our stocks are about $2 million and we would not be touching those. Of course a few years down the road, we would probably sell some stocks and pay off the $200,000 mortgage. Thanks for any info. I appreciate it.Footsox
Footsox,We did an asset based mortgage last August. I worked with Dan Cohen of Amerisave (404)324-4966. He was great. I had called about a month ago to see how mortgages were going and he indicated things were too busy for anything other than vanilla 1040 based mortgages but that may have changed. We didn't win the contract so didn't pursue it. We've gotten a few mortgages through Amerisave, more than one with Dan. Reliable.You will easily meet the minimum of 30% down.Good luck,IP
Footsox,I am in the same situation that you are and have gotten two mortgages in the past 5 years (one was a re-finance actually) for about $350K on a $500K home.Since all of our investments (after-tax joint, Roth IRAs, and trad IRAs)are with Fidelity, the mortgage company required us to set up a structured monthly withdrawal plan that provides enough income (couple with SS and a small pension) to cover the mortgage (P/I/T/I). Once the mortgage was approved, I could keep or cancel the monthly withdrawal without impacting the mortgage.So, bottom line, what you want to do is feasible - just have to jump through a few hoops.Good Luck.Windrath
Those last two said it all.When I first retired (14 years ago) they wanted to see a scheduled monthly withdrawal instruction to my broker. Basically, they want to see an income stream that looked like a paycheck. After closing, you can terminate the withdrawal plan.Last time I refi'ed, in late 2019, they didn't care about that, just wanted to see that our IRAs were large enough to sustain the income stream. I guess what changed is that there are now a lot of retirees with 7-figure retirement accounts, so they are used to seeing that.I would not get a 200K mortgage on a 600K house though. In for a penny, in for a pound. Go for a 75% or 80% LTV mortgage. Or whatever the interest rate sweet spot is for a jumbo mortgage of that size.
While our cash looks good and our stocks look good. Our actual monthly income is small by comparison.Do you have enough annual income that shows up on your 1040 to show that you could make the payments?(Even if it's mostly cap gains that never goes into your checking account)Can you setup distributions from an IRA or 401k?(I've seen posts on here from others that have setup monthly distributions, gotten the mortgage, then stopped/reduced the distributions)Is having a mortgage interest deduction beneficial to you tax wise? If not, it may be easier to do a margin loan against your assets at the broker. (Don't know how they'd compare on interest-rate basis)
Don't know how they'd compare on interest-rate basisI don't either. But I know how they fare on the calling-the-loan-when-TSHTF basis. A mortgage is the hands down winner there. I wouldn't use a margin loan for long-term financing.--Peter
Don't know how they'd compare on interest-rate basisI don't either. Are you kidding me? The BEST margin rate at Etrade is 6.95%. Going up to 8.95%. Not fixed, not un-callable."Rates are subject to change without notice. Rates are set at the discretion of [the broker]"
Thanks everyone for all the suggestions and things to consider. Someone mentioned a 75% or 80% LTV. Can you expand on that a little bit? If it is a 80% LTV on a $600,000 house, then if I get a mortgage of $200,000 on a $600,000 house, my LTV would be 33%? So, can you explain a little about why you would recommend a LTV of 80%?I try to see it from the loan people's point of view, but I am afraid I don't know all the ins and outs. Thanks again!Footsox
If it is a 80% LTV on a $600,000 house, then if I get a mortgage of $200,000 on a $600,000 house, my LTV would be 33%? So, can you explain a little about why you would recommend a LTV of 80%?Because if you're going to get a mortgage anyway, you may as well liquidate as much of the equity out of the illiquid asset (your house) as you can - usually for a cash out mortgage, that's somewhere in the range of 75% - 80% of the value of your house. The fact that you have a lower balance on the mortgage doesn't lower the risk that you can be foreclosed on - any time you have a mortgage on your house, you have a foreclosure risk. The mortgage balance could be $4,500; $45,000; or $450,000. No matter what the mortgage balance is, your house can be foreclosed on if you miss payments. (In fact, I would say that when the mortgage balance is lower, the lender has less chance of losing money on a foreclosure, so they may be more likely to foreclose). The only difference is the smaller the starting balance of the mortgage, the lower the monthly payment will be, so the less income/assets you need to have to qualify for the mortgage, and the lower your e-fund has to be to cover the time period you want your e-fund to cover. Of course, you also have to have less income/fewer assets to qualify for a mortgage that has a lower payment. So if you are trying to get an income-based mortgage, rather than an asset-based mortgage, you will have to show more income if you are getting a mortgage with an 80% LTV than you would if you were getting a mortgage with a 33% LTV. And let me point out - since you have no mortgage on your current house, the interest on the cash-out mortgage that you get will not be deductible, unless it's used to substantially improve your home. The TCJA changed that from the previous rules, that allowed interest on up to $100k of equity borrowing to be deductible, even if it's not used to improve your home. (Even under the previous rules, only the interest on $100k of the mortgage you're proposing would have been deductible, again, unless you used the money to improve the home.)AJ
Thanks AJ for all the great info. I really appreciate it. Lots for me to work on, that's for sure. I only get a mortgage every 20 years or so, so I forget all the info I learn between mortgages. :)Thanks again for all the replies.Footsox
If it is a 80% LTV on a $600,000 house, then if I get a mortgage of $200,000 on a $600,000 house, my LTV would be 33%? So, can you explain a little about why you would recommend a LTV of 80%?AJ saved me all the typing. ;-)The hard & costly part is getting any mortgage at all. After that nut, the difference between a small vs. large mortgage is negligible. So you might as well get a much as you can. 80% LTV is the sweet spot for a normal mortgage, I think that maybe it's lower for a jumbo--maybe 75% or so.Last time I refi'd, I asked them is I would get a better rate if I went for a lower LTV. They said no, the only difference was above or below 80% LTV.I you have any concern about encountering a stretch where you may have trouble making the monthly payments, take some of that money--maybe 24 or 36 months worth of payments--and put it in a dedicated "SHTF emergency mortgage payment" savings account.In your case, where you want to pull out 200K, you might take 400K, put 100K into this SHTF account (earning a negligible 1%), put 100K into a bond index fund (2.5% yield), and use the remaining 200K as planned.Kinda hard to have sleepless nights when you have $200,000 cash lying around.... the interest on the cash-out mortgage that you get will not be deductibleThe 2019 tax change largely gutted the value of the mortgage deduction. Suddenly lots of people found that the higher standard deduction negated their mortgage deduction. Certainly was for us. That was the first time in 30+ years that we filed with the standard deduction.Combined with the fact that current interest rates in the 3% range means that you don't actually pay all that much interest. Not like when you were paying 8%.
The 2019 tax change largely gutted the value of the mortgage deduction. Suddenly lots of people found that the higher standard deduction negated their mortgage deduction. Certainly was for us. That was the first time in 30+ years that we filed with the standard deduction.It did have a large impact on married people but my single daughter with her lower standard deduction was able to itemize.PSU
And let me point out - since you have no mortgage on your current house, the interest on the cash-out mortgage that you get will not be deductible, unless it's used to substantially improve your home. The original post said this would be a mortgage "for a new home" - as in they are going to purchase a house.And that IS deductible under the current tax law. Doesn't matter if the current house is paid off or not as that doesn't enter into the tax rules for a mortgage for purchasing a home.However, the mortgage interest deduction still may not matter for the OP.The standard deduction may be larger, which means the mortgage interest doesn't matter taxwise.
Are you kidding me? No, I'm not. A margin loan to buy a house is a bad idea in so many ways, that the relative interest rates really don't matter. Even if the margin loan were at a lower rate than a 30 year fixed, its still a bad idea for long term financing of a home.--PeterPS - A quick web search indicates that the E*Trade rate you quote is not very competitive, especially when you get to mid-six figure loans typical for a home.
A margin loan to buy a house is a bad idea in so many ways, that the relative interest rates really don't matter. Even if the margin loan were at a lower rate than a 30 year fixed, its still a bad idea for long term financing of a home.There are additional considerations you have to look at when doing a margin loan, like it could theoretically be called.OTOH, if you're retiring with a $2M-$4M portfolio and a $200K margin loan, I wouldn't be worried about it getting called.The variable interest rate - especially with fixed rates being really really low right now - would be a much bigger factor IMO.IMO the idea of using a margin loan (or anything non-conventional) to pay for part of a home purchase brings up a more emotional/fearful response that isn't just based on facts and reasonable assumptions/projections. ~20 years ago I used a margin loan to fund part of a home purchase - and in talking about it with people there were a number of people that did not think it was a good idea. Having looked at the possible options, and making projections of reasonable best and worst scenarios, I still went with my plan. Looking back, and having perfect insight of what the markets would do over the next few years, I didn't make the perfect choice. But I don't regret my choice since it was the best option based on the data I had at the time.
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