Use 403B to buy points on mortgage?

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Financial Gurus Please Advise -

I’ve done some number crunching, and I’m still stuck on some things…

As Is -

Purchase price of the home = $173,000
Interest Rate Today - 3.875%
Term - 30 years
Taxes - $6000

Monthly Payment = $1,313 + $50 NACA Membership Fee (7 years) = $1,363.

Seller’s Concession -

Purchase price of the home = $173,000
6% Seller’s Concession = $10,380
Mortgage = $183,380
Interest Rate Today - 3.875%
1.5% Point Buy Down = 2.38%
Term - 30 years
Taxes - $6000

Monthly Payment - $1,213 + $50 NACA Membership Fee (7 years) = $1,263.

Seller’s Concession + 403B Loan-

Purchase price of the home = $173,000
6% Seller’s Concession = $10,380
403B Loan = $16,000
Mortgage = $183,380 (Additional 403B loan @ 4.25% to me. 8yr, $100/check)
Interest Rate Today - 3.875%
3.83% Point Buy Down = 0.04%
Term - 30 years
Taxes - $6000

Monthly Payment - $1,012 + $50 NACA Membership Fee (7 years) = $1,079 + $216 monthly loan payment (8 years) = $1,279

I’m also considering borrowing the max allowed - maybe another $20k (Wish List) to really take advantage of the 0% rate… you really can’t go wrong right?

If I go with my gut, which says the market will still be horrible in 5-8 years, and I’m paying myself interest on the loan… is it worth borrowing it from my retirement? If the market takes a crap again, I win (I think) if the market stays the way it is I win (I think) and if the market does well… eh, I gain less than I would have.

Am I crazy for borrowing from my 403B (I’m 28 btw) to buy down points?
Any and all input is greatly appreciated.

Thanks,
Jack

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Can you show the amortization tables? Whats the differences in Interest paid? Will you be contributing to get back up to what you borrowed from the IRA? Whats your planned retirement goals… pension? IRA? working into retirement? How large is the current IRA?

Feel free to PM me hard numbers if you dont want to post them. Its rarely advised to take money out of any IRA for anything other than a more “secure” retirement.

Are there any penalties from the IRA distributions? and I’m not very familiar with buying down points…

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$70k in IRA (403B with Principal)

Amortization tables are online (mortgage calculator) - To give you an idea… it goes from $600/mo in interest to $6.00 when I buy it down. I lose some tax savings, but I’d rather have $2 in my hand than $1 in tax return.

Planned goals? Continue to max out my 403b contribution, invest into ROTH IRA in the next year or so and retire young and rich… right?

I think a 0% interest on any money for 30 years is great, and it crushes inflation…

A mortgage @ $173k @ 3.875 is roughly $1314/ mo for the life of the loan.
A mortgage @ $200k @ 0.04 is roughly $1058/ mo for the life of the loan.

Balance @ 2027 = 110k / 100k… because instead of $255 going to principal, I have $550/mo.

Interest @ 3.875 costs 1% purchase price for every .25% buy down… so roughly 3.75 = 15% = $26k up front.

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I’m not familiar with buying down the interest…200k interest free sounds too good to be true lol

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So, in short, would you take 16k out of this market to get a 200k mortgage for 0% 30yr fixed?

That’s as simple as it gets. Seems obvious, but that 16k COULD do well in the market. In 5 years r so that 16k would be paid back after tax and 4.25% interest to myself.

Though it will likely not be 0% it will probably be between 0.0128 and 0.04%.

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How long are you planning to stay in the house?

X…

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More than 8 years? That is about the break even point.

Based on the balance @ 8 years, I’ll be ahead with the buy down and my 403b will have been paid back in full. I’d like to stay there longer, but having never stayed there, it is hard to say.

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Whats the reason for overborrowing? Addition or garage or just a cheap general loan?

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Go for the sure thing IMO, I’ve made some money in the last few months but no way would I throw down money locked in for 8 years, especially now that the Dow is so high…

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Jeller - Probably an addition on the kitchen to create more of a great room and dining room. The kitchen needs updating anyway.

Jim, I’m not sure what youre saying. The only sure thing is a 0% mortgage. The Dow being high would lead me to believe you were referring to keeping the money in the 403b, which is anything but a sure thing. I lost way more than I’m borrowing last year. It sucks. Don’t get me wrong, I really don’t know what you’re saying. lol.

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you haven’t lost anything until you realize the loss by taking money out.

i’m not a fan of buying point because so few people end up staying in houses as long as they think they will, but if you’re run the numbers and you’re sure you’ll stay then go for it.

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dup

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Seller’s Concession -

Purchase price of the home = $173,000
6% Seller’s Concession = $10,380
Mortgage = $183,380
Interest Rate Today - 3.875%
1.5% Point Buy Down = 2.38%
Term - 30 years
Taxes - $6000

Monthly Payment - $1,213 + $50 NACA Membership Fee (7 years) = $1,263.

That’s the route I would go. I wouldn’t want to suck $16k out of the market right now. Especially if you’re not going to keep the house for the full 30 years, hell if it was an option I’d do 15 years at a lower rate and come out with mega equity in 8 years, plus keep my $16k in my investments. That $16k could make you quite a bit more money.

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this reasoning is why I’m doing a penfed 5/5 arm refi right now, this is the worst case scenario (keeping the same payment I have today by applying more towards principal.

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What excel program is that?

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Adjustable rate mortgages, when fixed rates are at 3.5… :picard: unless you’re paying it off in 5 years…

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show me a 3.5 without points… they are more like 3.75 at best and normally with an origination fee.

plus the penfed promo pays closing costs (doesn’t roll them in)so that’s worth about 3-5k in my case.

I’ve run it every way, this wins big unless I stay for 30 years, even then it beats what I have now and ties a 3.8-4 fixed. I’m at 10% equity today and I’ll get to 20% in 2-3 years with this plan killing off PMI and saving another $90 a month sooner.

I’ll throw up a link for the excel sheet once I’m back at my cube in a while, it’s a really good one.

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here is the excel link:

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They’re going to give you the loan with only 10% equity? How does that work?

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I was going over my figures yesterday at M&T, FHA Loan for 15 Year term is 3.25 with 2.33% lender credit right now. (credit score must be above 720 for both husband/wife).

The 15 year has soo much lower interest over the term, but everyones comfort level with the monthly payment is different.