[USER]

Advice needed for an incredibly privileged situation.

My partner and I are buying our current residence (rented to us) for $300k. The house has a market value of at least $790k (this is just about the cheapest house in our city). The difference is a “gift of equity” to us by the owners.

Financial situation: Due to mental health only one of us is working right now (salary $110k/year).

We have $530k total in index fund investments and cash. All but $150k is in retirement accounts. If we get a $300k mortgage the interest rate will be about 7.12%.

Based on this info would you put any cash down or take the $300k mortgage?

Note: we will buy this house no matter what. In five years we will reassess our financial health and possibly sell and move to a lower cost of living area. There are personal connections and obligations keeping us here.

[Juliett]

You can take a $300k mortgage.

But be warned if you’re being gifted the rest of the home, you’ll be subject to some serious capital gains.

[Champ]

Take the 300k mortgage.

[Hayley]

It sounds like you have $150k cash. I would put $100k down (leaving a $50k emergency fund) and have a $200k mortgage.

Reason: Having a lower monthly payment is less pressure for the non-working spouse to return to work. You mentioned one of you is not working due to mental health, but there is no mention of an end date to this situation.

Was it a toxic work environment, from which you can recover and eventually return to working in a non-toxic environment? Or is this a chronic condition, and you may end up living on one income indefinitely?

If your income is $110K for the foreseeable future, run the numbers and keep your housing costs proportional to your income (current income, not projected income if everything goes according to plan).

Don’t miss: I want to compare putting my savings into paying off my mortgage versus into shares

[Aatiyah]

Given the mental health challenges I’m more inclined to keep the cash reserves and put a smaller down payment say $50k.

Worst case you’d have to sell the house and you’d still have a ton of equity. I first bought back in 08 when rates were in the 6s so I get it looks painful but it is what it is. Got lucky and 2nd time in 21 have a rate in the 2s.

If you plan to stay put you can refi if rates drop.

[Golden]

Sounds like a great deal. Just be aware…could be high taxes and maintenance costs and insurance. Lots more than just the mortgage payments.

Maybe take out the mortgage and save the cash for all the high costs that come with the house.

[Konrad]

With rate above 5% I’d be looking to refi as soon as rates drop (say next few years). This probably would make me consider putting less down.

Also you determine the amount of down payment by considering the alternative investment gains ie: if you think that market will return more than 7% you put less, if less than put more down.

In the end the payment should be at the comfortable range.

Explore these too: Has anybody used velocity banking to pay off their mortgage?

[Rachel]

Okay, the interest rate right now isn’t great, but without doing anything at all, you will have $490k in equity. Therefore, I wouldn’t stress too terribly much about the interest. Rates will go down at some point, and even if you make practically no difference in your equity, you already own more than half the value free and clear.

If it were me, I’d put down enough so that my payment was close to what I’m paying in rent. That way, you’re not cleaning out your savings, life will continue as normal, and money isn’t going to be an added stressor on either end of the equation.

[Jay]

Mortgage is fine and mathematically correct. However, I’m one of those people that likes things paid off. I sleep better at night and I have socked away tons of cash/investments with no mortgage payment.

Would I have done better financially keeping a mortgage – idk?

I have done well and I had cash in the 08 crash to buy things cheap. Will there be another crash – I would bet on it.

[Author]

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