Construction Loan to Final Mortgage

[treillw]

My plan is to setup a 30 year mortgage. I should be able to get a 2.875% rate at a maximum.

We have a good bit of money saved up that we used during construction to avoid paying 4.5% interest on the whole amount of the construction loan (had extra in there for reserve, just in case).

I will probably finance the full cost of the house, less 20% so we don't have to pay the PMI.

From there, I'm thinking of dumping both my wife's and my entire paycheck into our 401k until we max out the yearly contribution. During this time we would live off our savings. We would keep doing this until we have a lesser, but still comfortable, amount of savings in the bank for a rainy day. Then go back to balancing our paycheck between mortgage, retirement, and life.

Thoughts?

 

[JakeSCH]

My plan is to setup a 30 year mortgage. I should be able to get a 2.875% rate at a maximum.

We have a good bit of money saved up that we used during construction to avoid paying 4.5% interest on the whole amount of the construction loan (had extra in there for reserve, just in case).

I will probably finance the full cost of the house, less 20% so we don't have to pay the PMI.

From there, I'm thinking of dumping both my wife's and my entire paycheck into our 401k until we max out the yearly contribution. During this time we would live off our savings. We would keep doing this until we have a lesser, but still comfortable, amount of savings in the bank for a rainy day. Then go back to balancing our paycheck between mortgage, retirement, and life.

Thoughts?

I would find a financial planner to go over all the numbers and come up with a tailored strategy. I have friends who take that same approach, but that approach makes the assumption that your taxes later on will be lower than today...which may not be the case so you need to find a balance especially since you will have more deductions today with the house.

Keep in mind that 401k cannot be touch early. So if you plan / have a desire to retire before than you may want to look in investing outside of the 401k....basically I am saying this to encourage you to find a CFP.

 

[bozeman]

OP- you seem to have a good $$ head on your shoulders.......I agree with what was said above, I would reach out to a Financial Planner for some guidance or at least to confirm your strategy. Best of luck!

 

[MattB]

That is very similar to what we did as well. I like having the "net" to fall back on if needed, but continue to overpay when possible. Whoever you go with it is a good idea to make sure you know exactly how extra payment is applied though. Mine goes right to principle, but I have heard some banks get sneaky and can apply it in non-advantageous ways.

Good advice.

As an extension of that, one other thing to note is that many loans are set up so the amortization can be re-cast during its life. What I mean by that is if you pre-pay a sizable amount of principal you can actually have the monthly payment reduced on the then-owed principal balance. I am not advocating this as a strategy, just as an option as many are unaware as a way to buy some financial flexibility if cash gets tight.

A really rough example: let's say you borrow $100K at 3% for 30 years. The monthly P+I payment is $422. If you were to pre-pay $20K additional to scheduled principal payments in the first 10 years, you could then potentially re-cast the balance to reduce the payment to $311/month. The final maturity date of the loan would remain the same, just the monthly payment would be reduced.

 

[treillw]

I would find a financial planner to go over all the numbers and come up with a tailored strategy. I have friends who take that same approach, but that approach makes the assumption that your taxes later on will be lower than today...which may not be the case so you need to find a balance especially since you will have more deductions today with the house.

Keep in mind that 401k cannot be touch early. So if you plan / have a desire to retire before than you may want to look in investing outside of the 401k....basically I am saying this to encourage you to find a CFP.

How much does it usually cost to consult a financial planner? You just talk to them for a few hours and they charge you a few hundred dollars?

Just search for them online in your area?

Thanks to all for the help.

 

[JakeSCH]

How much does it usually cost to consult a financial planner? You just talk to them for a few hours and they charge you a few hundred dollars?

Just search for them online in your area?

Thanks to all for the help.

Here is a good article to get started. https://www.bloomberg.com/opinion/a...inance-find-a-financial-adviser-you-can-trust

Different advisers do different things, but I would follow the advice in the article above.

My CFP is essentially paid 1% of my money that he manages, so its in both of our best interests to grow it.