Should I use EE bonds for the house down payment?

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alil
Posts: 77
Joined: Mon Nov 18, 2013 2:52 pm

Should I use EE bonds for the house down payment?

Post by alil » Sat Jan 12, 2019 10:10 am

I will be likely buying my first house and am trying to decide what the best financing option is.

I am considering 15 year fixed mortgage (interest rate about 4%) with 20% down payment - which will be 50 K $.

I have planned for the house purchase and have 55 K in a 5 year CD at 3.25% maturing in June of this year (3 months in interest will be lost if I break it)

For each of the past 5 years I have been purchased 10 K in I bonds and EE bonds (not part of my emergency fund).

After reading a recent post about EE bonds (viewtopic.php?t=217081) I have second thoughts whether I should keep the EE bonds to maturity and whether it may be wiser to just use the 50 K towards the down payment (I could also use the CD and EE bonds for a total of 100K down).

I am fairly confident that I wound not need to cash the EE bonds before 20 years doubling time which will result in guaranteed nominal return of 3.5 %.

I liked the idea of effectively building an annuity using the EE bonds, deflation protection and a guaranteed income of 20K yearly after 20 years (there is the inflation risk of course).

EE bonds could be used for Qualified Education Expenses if the modified adjusted gross income (MAGI) might be more than $92,200 ($145,750 if married filing).

I could use the EE bonds to fund my children's 529 plans after holding them for 20 years, and avoid paying the taxes. However there is a good chance my income will be more than 145K when the EE bonds mature.

Any thoughts on the best way to approach this decision and financing my house purchase would be greatly appreciate it.
Last edited by alil on Sat Jan 12, 2019 12:29 pm, edited 1 time in total.

TBillT
Posts: 488
Joined: Sat Sep 17, 2011 1:43 pm

Re: Should I use EE bonds for the house down payment

Post by TBillT » Sat Jan 12, 2019 10:46 am

Gee I dunno, holding EE to double seemed good idea to me (have not done so myself, but liked the idea for college).

I am selling some iBonds that are lackluster...probably keeping only my April_2008's paying 1% fixed. I do not have big investment, but that is my direction.

Topic Author
alil
Posts: 77
Joined: Mon Nov 18, 2013 2:52 pm

Re: Should I use EE bonds for the house down payment

Post by alil » Sat Jan 12, 2019 12:29 pm

Thank you for your answer TBillT.

I guess I could always use the CD for the down payment and have the option of using the EE bonds later to pay down my mortgage faster. The issues is however that the longer I wait the more valuable the EE bonds become as they get closer to the doubling time and the interest they generate if redeemed before 20 years is only 0.2%.

It's possible I'm considering selling the EE bonds because of the recent increase in the interest rates and possibility of inflation. Of course no one knows what's ahead so am I timing the market? Maybe I should stick with my original plan as per my IPS and keep buying the EE bonds.

Quaestner
Posts: 79
Joined: Tue Jul 18, 2017 6:39 pm

Re: Should I use EE bonds for the house down payment?

Post by Quaestner » Sat Jan 12, 2019 12:53 pm

I stopped buying EE bonds, but I do have some at TD. The way I think about my 5 year old EE bond is that it is now a bond that will double in value in 15 years. Do I want to give that up? What are my alternatives? How much do I need to earn on a new (similarly risk free) investment that would be comparable to a 15 year bond that doubles in value? I think that alternative investment I would need to yield in the range of 4.7%. In other words selling that EE bond means giving up more interest than you'll pay on your 15 year fixed interest loan. As was mentioned, the EE bonds have special tax considerations and are a low risk part of your portfolio. So, if it was me, I wouldn't sell the oldest EE bonds, but wouldn't worry too much about selling the recent purchases.

Topic Author
alil
Posts: 77
Joined: Mon Nov 18, 2013 2:52 pm

Re: Should I use EE bonds for the house down payment?

Post by alil » Sun Jan 13, 2019 10:01 am

Thank you Quaestner,

Good point about selling the most recent EE bonds and keep the older ones. I could also sell some EE bonds and buy I bonds this year (I have been purchasing both for the past 5 years) and increase my down payment or pay off the mortgage faster...

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