Alternative to Mortgage if $$ amount is "small"

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tettnanger
Posts: 38
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Location: Michigan

Alternative to Mortgage if $$ amount is "small"

Post by tettnanger » Thu Jul 30, 2020 1:34 pm

Hello,

I'm in a situation where we hopefully (pending appraisals) am going to be able to sell our current house and downsize to a smaller house. The end goal was to have a smaller, more manageable house now that our youngest starts college in the fall and, most importantly, have no mortgage payment (or at least one that is very small).

After selling my current house, paying off that mortgage, and putting some savings toward it, I may end up being, say, $10K short of paying off the new house in full. It would seem kind of silly to me to take out a $10K mortgage and incur ~$4K in closing costs for doing so.

Are there any alternatives that may be available I'm not thinking of? I've thought of maybe asking a family member if he wouldn't mind making some interest off a personal loan to me. I would plan to pay off the $10K within a year or so regardless, but unlike a mortgage I wouldn't be unnecessarily blowing money on closing costs.

Thank You

tashnewbie
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Re: Alternative to Mortgage if $$ amount is "small"

Post by tashnewbie » Thu Jul 30, 2020 1:41 pm

Use a 0% APR credit card and pay off the balance before the zero interest period ends (typically 12-18 months)? I think the Citi Double Cash back CC has such an introductory rate, and I'm sure others do.

FishTaco
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Re: Alternative to Mortgage if $$ amount is "small"

Post by FishTaco » Thu Jul 30, 2020 1:45 pm

+1 for CC with 0% promo rate.

Another option is a small margin loan if you hold securities at a place with reasonable margin rates such as Interactive Brokers. I personally think this would be a reasonable use for EF monies, although others may disagree.

delamer
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Re: Alternative to Mortgage if $$ amount is "small"

Post by delamer » Thu Jul 30, 2020 1:49 pm

I can’t imagine any lender giving you a $10,000 mortgage. Just not profitable.

Do you have a 401(k) that you could borrow against — assuming you really mean you could pay it back in a year?

Topic Author
tettnanger
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Location: Michigan

Re: Alternative to Mortgage if $$ amount is "small"

Post by tettnanger » Thu Jul 30, 2020 2:05 pm

tashnewbie wrote:
Thu Jul 30, 2020 1:41 pm
Use a 0% APR credit card and pay off the balance before the zero interest period ends (typically 12-18 months)? I think the Citi Double Cash back CC has such an introductory rate, and I'm sure others do.
Hmm, thanks, that's an interesting idea. I never thought of that. Although I've already had the Citi Double Cash card for years, but maybe there are others like you said.

Topic Author
tettnanger
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Location: Michigan

Re: Alternative to Mortgage if $$ amount is "small"

Post by tettnanger » Thu Jul 30, 2020 2:06 pm

delamer wrote:
Thu Jul 30, 2020 1:49 pm
I can’t imagine any lender giving you a $10,000 mortgage. Just not profitable.

Do you have a 401(k) that you could borrow against — assuming you really mean you could pay it back in a year?
Well, I do have a 401K with about $850K in it. Never really read up on the "rules" for borrowing against it, but it never sounded like a good idea to me. I always figured I should never touch my retirement invests period. Are there penalties?

armeliusc
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Re: Alternative to Mortgage if $$ amount is "small"

Post by armeliusc » Thu Jul 30, 2020 2:12 pm

Any EF you can 'borrow' against provided you can rebuild that relatively quickly? How about Roth IRA contribution? Do you have HSA and previous out-of-pocket healthcare cost that you haven't reimburse with HSA?

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Watty
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Re: Alternative to Mortgage if $$ amount is "small"

Post by Watty » Thu Jul 30, 2020 2:15 pm

tettnanger wrote:
Thu Jul 30, 2020 1:34 pm
Are there any alternatives that may be available I'm not thinking of?

I have not done it but I have heard that you can set up a home equity loan or line of credit on the new house to buy a house.


If you have a paid off car/rv/boat that is worth that much you could also get a car loan.

Ryzen
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Re: Alternative to Mortgage if $$ amount is "small"

Post by Ryzen » Thu Jul 30, 2020 2:17 pm

tettnanger wrote:
Thu Jul 30, 2020 2:06 pm
delamer wrote:
Thu Jul 30, 2020 1:49 pm
I can’t imagine any lender giving you a $10,000 mortgage. Just not profitable.

Do you have a 401(k) that you could borrow against — assuming you really mean you could pay it back in a year?
Well, I do have a 401K with about $850K in it. Never really read up on the "rules" for borrowing against it, but it never sounded like a good idea to me. I always figured I should never touch my retirement invests period. Are there penalties?
A 401k loan in your situation would not be a bad idea at all. They are bad when people borrow a significant portion because it pulls money out of the market, but in your case its a small percentage of your balance. And you pay the interest to yourself (with after-tax dollars though) so it's generally pretty cheap. No penalties for doing a loan since you sign a promissory note and pay it back, only time there would be penalties is if you left the company and did not pay the loan back (called a deemed distribution which is treated like any other early distribution out of a plan).

niceguy7376
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Re: Alternative to Mortgage if $$ amount is "small"

Post by niceguy7376 » Thu Jul 30, 2020 2:18 pm

What about this CARES Act allowing to take money from retirement accounts without a penalty?

rascott
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Re: Alternative to Mortgage if $$ amount is "small"

Post by rascott » Thu Jul 30, 2020 2:21 pm

tettnanger wrote:
Thu Jul 30, 2020 1:34 pm
Hello,

I'm in a situation where we hopefully (pending appraisals) am going to be able to sell our current house and downsize to a smaller house. The end goal was to have a smaller, more manageable house now that our youngest starts college in the fall and, most importantly, have no mortgage payment (or at least one that is very small).

After selling my current house, paying off that mortgage, and putting some savings toward it, I may end up being, say, $10K short of paying off the new house in full. It would seem kind of silly to me to take out a $10K mortgage and incur ~$4K in closing costs for doing so.

Are there any alternatives that may be available I'm not thinking of? I've thought of maybe asking a family member if he wouldn't mind making some interest off a personal loan to me. I would plan to pay off the $10K within a year or so regardless, but unlike a mortgage I wouldn't be unnecessarily blowing money on closing costs.

Thank You
HELOC
Personal loan
Credit card 0% offer.

Lightstream will give you a loan for just about anything, if you have good credit.

You could take a 401k loan... $10k over a year vs a $850k account is immaterial.

Doesn't really matter. You are going to pay it off so quick, interest rate is fairly irrelevant.

You couldn't even get a regular mortgage if you wanted to for $10k.

But another option is getting a traditional mortgage, with zero costs via lending credits and a higher rate. .. then immediately pay it down with your cash after closing.

MathWizard
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Re: Alternative to Mortgage if $$ amount is "small"

Post by MathWizard » Thu Jul 30, 2020 2:30 pm

You could also see about an auto loan on a paid off car, or a signature loan.

Jack FFR1846
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Re: Alternative to Mortgage if $$ amount is "small"

Post by Jack FFR1846 » Thu Jul 30, 2020 2:38 pm

I know my credit union (DCU) specializes in auto refinancing with rates equal to buying a new car. Looking now, it's 2.49%. Cheaper than a mortgage and with the standard deduction at $24k, you're getting nothing for paying mortgage interest anyways. Oh....plus zero cost.
Bogle: Smart Beta is stupid

delamer
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Re: Alternative to Mortgage if $$ amount is "small"

Post by delamer » Fri Jul 31, 2020 10:09 am

Ryzen wrote:
Thu Jul 30, 2020 2:17 pm
tettnanger wrote:
Thu Jul 30, 2020 2:06 pm
delamer wrote:
Thu Jul 30, 2020 1:49 pm
I can’t imagine any lender giving you a $10,000 mortgage. Just not profitable.

Do you have a 401(k) that you could borrow against — assuming you really mean you could pay it back in a year?
Well, I do have a 401K with about $850K in it. Never really read up on the "rules" for borrowing against it, but it never sounded like a good idea to me. I always figured I should never touch my retirement invests period. Are there penalties?
A 401k loan in your situation would not be a bad idea at all. They are bad when people borrow a significant portion because it pulls money out of the market, but in your case its a small percentage of your balance. And you pay the interest to yourself (with after-tax dollars though) so it's generally pretty cheap. No penalties for doing a loan since you sign a promissory note and pay it back, only time there would be penalties is if you left the company and did not pay the loan back (called a deemed distribution which is treated like any other early distribution out of a plan).
Agree with the above — $10,000 is trivial given your balance. It’s the people who take out $10,000 with a $25,000 balance who are asking for trouble.

Companies set their own policies, but generally you can borrow up to $50,000 and you pay it back via payroll deduction. Check with your HR office or on your company’s intranet site if it has information on benefits. There are no penalties if you do a loan. There can be if you do an actual withdrawal.

This article gives a good accounting of the options: https://www.investopedia.com/ask/answer ... -house.asp

tashnewbie
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Re: Alternative to Mortgage if $$ amount is "small"

Post by tashnewbie » Fri Jul 31, 2020 10:25 am

tettnanger wrote:
Thu Jul 30, 2020 2:05 pm
tashnewbie wrote:
Thu Jul 30, 2020 1:41 pm
Use a 0% APR credit card and pay off the balance before the zero interest period ends (typically 12-18 months)? I think the Citi Double Cash back CC has such an introductory rate, and I'm sure others do.
Hmm, thanks, that's an interesting idea. I never thought of that. Although I've already had the Citi Double Cash card for years, but maybe there are others like you said.
I discovered yesterday that this Alliant 2% cash back credit card has a 12 month 0% introductory APR: https://www.alliantcreditunion.org/bank ... wards-card

TXGator
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Re: Alternative to Mortgage if $$ amount is "small"

Post by TXGator » Fri Jul 31, 2020 12:03 pm

Could move $40k in investments to M1 and borrow 35% of your portfolio at 2% if you sign up for M1+

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gr7070
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Re: Alternative to Mortgage if $$ amount is "small"

Post by gr7070 » Fri Jul 31, 2020 12:08 pm

How about a paid for car? Borrow against it. That's usually the best, cheapest, fastest, easiest way to borrow. Usually comes with a low rate and a very limited period, too.

There are a ton of lenders that offer just straight up personal loans, read unsecured. They're usually expensive, though. Surely you'd be able to qualify.

At just 10k I'd likely take it out of my emergency fund. That's, what, 2+ months expenses. If you have a 6 month EF you should be fine, and able to rebuild it quickly with no mortgage.
Last edited by gr7070 on Fri Jul 31, 2020 12:17 pm, edited 2 times in total.

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gr7070
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Re: Alternative to Mortgage if $$ amount is "small"

Post by gr7070 » Fri Jul 31, 2020 12:14 pm

tettnanger wrote:
Thu Jul 30, 2020 2:06 pm
delamer wrote:
Thu Jul 30, 2020 1:49 pm
Do you have a 401(k) that you could borrow against — assuming you really mean you could pay it back in a year?
Well, I do have a 401K with about $850K in it. Never really read up on the "rules" for borrowing against it, but it never sounded like a good idea to me. I always figured I should never touch my retirement invests period. Are there penalties?
You're generally correct - it's not a good idea. However, for you situation it would be ok. Though I'd definitely rather take a car loan or use some of my EF than the 401k loan.

There are no direct penalties, other than interest, at least in most (all?) plans. However, you likely lose this balance amount from accruing value in your chosen investments.

It is a very reasonable option, but at best it'd be #3 on the list.

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gr7070
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Re: Alternative to Mortgage if $$ amount is "small"

Post by gr7070 » Fri Jul 31, 2020 12:20 pm

Question for the credit card suggestions. Are these 0% offers usually extended to cash "withdrawals" from the card? I know it's common for balance *transfers*, but are there applied to essentially a cash draw?

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gr7070
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Re: Alternative to Mortgage if $$ amount is "small"

Post by gr7070 » Fri Jul 31, 2020 12:24 pm

You might also explore a HEL, not a line of credit. What used to be referred to as a second mortgage.

These are no cost loans with a slightly higher rate, though the slightly is greater nowadays.

Unsure about doing this on the purchase - as opposed to tapping equity on an existing home. I presume this is easily done though.

I did this to refi my home back in the day when these rates were closer to mortgage rates. I didn't owe enough on my home at the time to justify a few grand in closing costs to get a mortgage. So I just got a "second" mortgages and paid off the mortgage.

Check PenFed. They usually have excellent HEL rates.

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