<p>After some serious consideration, my H and I decided to build a new townhouse instead of sinking money into our 23 year old home. Currently, we have no mortgage. The home we are building will cost about $60,000 over what we expect to get out of our current house. We are both 51, one child in college (her education is being paid for by us with money already saved in a 529.) 401ks are maxed every year, and we have about $150,000 in liquid savings (bonds/mutual funds). </p>
<p>I’m not sure how to proceed from here and what makes more sense. Should we mortgage the $60,000 for no more than 5 years or use the savings, since it isn’t earning much money now anyway? I’m partly tempted to use the savings and replenish the money each month, thereby effectively borrowing from ourselves (we’re very disciplined and will replace the money). The tax implication doesn’t really amount to much. </p>
<p>I was about to suggest checking the tax consequences since it may make the loan more attractive but it looks like you already checked that.</p>
<p>The other consideration is emergency funds - making sure you have a comfortable amount of money available if needed. Also consider things like vehicle replacement, college costs, etc.</p>
<p>You’d still have $90K in savings which seems adequate for the above so I’d do the math, including the variables of tax implications, and probably go with whatever one, paying cash or mortgaging, that costs the least.</p>
<p>You haven’t yet sold your current home and therefore don’t know exactly what you’ll get out of it, and you haven’t yet built the new home and therefore don’t know exactly how much it will cost. You also don’t know exactly how much it will cost to live in the new home – e.g., electric, heating, water.Therefore it might be wise to plan to mortgage the amount you anticipate, but – if everything works out as planned – you could pay off the entire mortgage the first or second or third month out.</p>
<p>Based on current housing prices (in Pittsburgh), we are fairly confident in the amout we will get for our current home (we are being conservative). Since we are building a townhome only slightly smaller than our current house (minus the huge yard), our monthly expenses should be very similar. We both drive cars with little mileage on them right now, so I’m not anticipating any new car purchases for a few years. College funds have already been accounted for. </p>
<p>I like the security of having that $60,000 in the bank, but over 5 years, the interest is close to $5,000. A $1,000 per year deduction for mortgage interest won’t make much of a dent in our tax liability. </p>
<p>I thought about borrowing the money from ourselves (if that makes any sense). Use the $60,000, but each month, deposit a check (including 3 percent interest) back into our savings. </p>
<p>I’m always looking at ways to use money creatively!</p>
<p>It depends on the interest rate, but if it’s less than 3%, I personally would borrow it even with the savings account. You can also deduct with the interest and with the low interest rate, it’s a hedge against inflation and it’s allow a little bit of flexibility (just in case).</p>
<p>Edit to add that I read somewhere that 10-year mortgage rate is 1.70-2.0%, if this is true it’s unbelievable cheap source of money.</p>
<p>I would borrow, but look for the lowest closing costs, as it sounds like you will try to pay it off quickly. You could also consider a maturity less than 30 years, which will have a lower rate.</p>
<p>Given what you posted and the amount of reserves you have and lack of costs you’re facing (college already paid off, no new cars to buy), I don’t see the benefits of borrowing - it’ll only cost you money and hassle. Even a difference of earning 1% interest and paying 3% (but you’ll likely pay more than that) is a difference of 2% out of your pocket and to what end?</p>
<p>For the posters suggesting to borrow, why do you think they should borrow?</p>
<p>Mortgage is a cheap source of money and the interest savings are spread out over future years, when their value will be substantially eroded by inflation.</p>
<p>We bought part of our car with an interest-free credit card–I think it was 0% interest for the first 6 or 12 months. We put as much as we could on the credit card that would give us back cash and then the balance on the interest free card. We paid the minimum amount due every month and saved as much as we could. We paid off the entire balance before the 0% interest offer expired. It worked well for us and there was no loan closing costs or any fees involved. Not sure what we did with the credit card thereafter, since we didn’t need it any more. ;)</p>