How to best pay for a second home?
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How to best pay for a second home?
I’m in a bit of a quandary and looking for some knowledgeable guidance. I’m 69, my spouse of 45 years is 71 (she robbed the cradle…). We live on Cape Cod and spend winters in an AZ rental (just south of Tucson). She would very much like a second home in AZ and I’m trying to work out the most intelligent way to accommodate her. For the record, my choice would be to rent forever in AZ, until such time as we sold our Cape home and moved there permanently. So, telling me that’s the best way to do it will not help my situation.
The numbers:
My yearly retirement income is about $140,000. Money comes from three streams; two separate pensions from two different agencies (from two different states) and Social Security.
We have a total of a little over $700,000 (mostly Vanguard) in qualified accounts. My RMD will be around $24,000 before taxes.
We have about $280,000 in dividend stocks in an after tax ETrade account. We DRIP our dividends.
We have no debt and own our home on Cape Cod. We live below our means and put away about $3,600 a month in a couple of “buckets” (MM accounts for our yearly house rental and an emergency fund). We still have money left over.
So, the question. What would be the most intelligent way to finance this second home in AZ? We’re looking at the $250,000~$300,000 range of houses.
My gut is to take out a mortgage (of about $300,000) on my Cape home and pay “cash” for the AZ house. Is there a more intelligent or sophisticated way to handle this purchase?
Thanks for your time.
Rich
The numbers:
My yearly retirement income is about $140,000. Money comes from three streams; two separate pensions from two different agencies (from two different states) and Social Security.
We have a total of a little over $700,000 (mostly Vanguard) in qualified accounts. My RMD will be around $24,000 before taxes.
We have about $280,000 in dividend stocks in an after tax ETrade account. We DRIP our dividends.
We have no debt and own our home on Cape Cod. We live below our means and put away about $3,600 a month in a couple of “buckets” (MM accounts for our yearly house rental and an emergency fund). We still have money left over.
So, the question. What would be the most intelligent way to finance this second home in AZ? We’re looking at the $250,000~$300,000 range of houses.
My gut is to take out a mortgage (of about $300,000) on my Cape home and pay “cash” for the AZ house. Is there a more intelligent or sophisticated way to handle this purchase?
Thanks for your time.
Rich
Rich Cape Cod/AZ
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Re: How to best pay for a second home?
Assuming that the Cape home is worth at least, say, $400k, and assuming zero possibility of default/foreclosure, then I agree with your approach. It will likely be cheaper to borrow against the primary home than against a second home. There's no reason to make it any more complicated than that.
Of course, another option is to just pay in cash from your liquid assets. Are you worried about the tax hit, or the liquidity hit?
One other question: what's keeping you in Cape Cod? I.e., why not sell the Cape home and move to AZ now?
Of course, another option is to just pay in cash from your liquid assets. Are you worried about the tax hit, or the liquidity hit?
One other question: what's keeping you in Cape Cod? I.e., why not sell the Cape home and move to AZ now?
Re: How to best pay for a second home?
I was in a similar situation last year, looking to purchase our retirement home a few years before we retire, sell our current home, and move to the new home. When I looked at the options I found that I would save about 1 point in interest by financing our principal residence vs. a second home. I assume you will continue to spend most of the year in MA, so that would be considered your principal residence.
Dave
Dave
Dave
Re: How to best pay for a second home?
Wouldn't the mortgage rate on a new purchase be lower than a home equity loan?
Re: How to best pay for a second home?
Hmmmm,,,Age 71,69 ,who needs a mortgage?Less is More
I would sell ,pay cash move to Arizona.
But if you want to keep the Cape Cod,then trust your "Gut" and take the mortgage out on the Cape Cod
I would sell ,pay cash move to Arizona.
But if you want to keep the Cape Cod,then trust your "Gut" and take the mortgage out on the Cape Cod
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
Re: How to best pay for a second home?
I think Pentagon Federal http://www.penfed.org has the same mortgage rates for vacation homes as for primary residences. As of now, 15 year fixed is 3% plus a 1% fee (or 3.25% without the 1% fee) and 30 year fixed is 3.875% plus a 1% fee (or 4.125% without the 1% fee).
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Re: How to best pay for a second home?
I thought about just selling out my ETrade money. We'd have around $250K or so after taxes (just a guess). I'd hate to do that. I've got it set up so that if I should predecease my spouse that account, as of today, will spit out around $10K a year for her. If I can avoid touching that account I will.NoVa Lurker wrote:.........Of course, another option is to just pay in cash from your liquid assets. Are you worried about the tax hit, or the liquidity hit?
One other question: what's keeping you in Cape Cod? I.e., why not sell the Cape home and move to AZ now?
You are logical in suggesting just sell the Cape house (probably would go for around $650K or so) and be done with it. Well, there are a couple of reasons I'm reluctant to do so right at the moment. We've been in the home since 1990 and have it set up so that it's "perfect" for us. The house is located on the "arm" of the Cape, in a very nice area, in a small town where I know quite a few people. Furthermore, the house is so full of "stuff" that I dread the task of clearing it out in anticipation of a sale. Sounds dopey, but that's how it is.
Rich Cape Cod/AZ
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Re: How to best pay for a second home?
The consensus seems to be to remortgage the Cape house for the amount needed for AZ. I was hoping for someone to come up with some other, more brilliant plan, that I had overlooked, but life ain't like that.
Thanks for everyone's input.
Rich
Thanks for everyone's input.
Rich
Rich Cape Cod/AZ
Re: How to best pay for a second home?
If you choose not to sell the Cape Cod,then like you said the alternative is too take out a mortgage.Rich Cape Cod wrote:The consensus seems to be to remortgage the Cape house for the amount needed for AZ. I was hoping for someone to come up with some other, more brilliant plan, that I had overlooked, but life ain't like that.
Thanks for everyone's input.
Rich
If you do I would certainly consider putting as much cash as possible towards the purchase of the new home using the Etrade Account.
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee