Paying For Some of My New Home by Borrowing from Myself

I have had this idea in my head for a bit and I am almost positive I will not do go through with it, but I think it is an interesting topic nonetheless.  As many readers know I am in the midst of selling my home and purchasing a new one, and in doing so I have played with a mortgage calculator more times than I would like to admit.  It is not even in question that I am going to put down at least 20% as to avoid PMI, but what if I put more money down? Specifically, what if “I borrowed money from myself” to increase my down payment and then focused on paying down those debts as quickly as possible?

Sources I Could Use to Borrow from Myself

Within a week or so I could tap leverage the following assets:

  • Non-Qualified Dividend Account – I have a margin account and thus could take out up to 50% in cash within a couple of days.
  • 401(k) – I could take out a loan against my 401(k)
  • Cash Value Life Insurance – While I could take a loan against my life insurance policy it is a “blended policy” and thus has not accumulated much cash yet.

While the majority of my net worth is in cash right now I could add another couple percentage points on the down payment pretty easily.

Why I would Borrow From Myself to Put More Money Down on a Home

I think some of the advantages are:

  • More manageable pieces of debt. It is easier to keep up intensity attacking  a $10,000 loan rather than a $500,000 mortgage.
  • I can lower my Monthly Nut quicker.  As I pay off the debt with aforementioned focus my monthly nut will go lower versus prepaying my mortgage quicker since that will take way over a decade even at the most optimal of forecasts to pay off.

Why I Most Likely Won’t be Borrowing from Myself to Put More Money Down on a Home

I don’t think I am actually going to make the move discussed here for a couple reasons:

  • The amount I’d be able to pull out of those accounts are not likely to move my mortgage payment all that much.
  • I am afraid of messing up my debt to income ratiosince the minimum payments on those debts would now be included
  • The interest rate on the leverage would  be higher than what I can get for a mortgage (and not tax deductible)
  • Speaking of interest rates, they are at historical lows why not take advantage.
  • The biggest reason for me not to follow through with this plan is that I am taking semi-liquid assets and turning them into an illiquid asset at the same exact time I am getting rid of most of my liquid cash.

Have you ever used this technique before?

Thank you for quick cash loans in the uk for taking an interest in this post.

14 Responses to Paying For Some of My New Home by Borrowing from Myself

  1. I personally wouldn’t do it. Mortgages get cheaper over time as inflation erodes the dollars you use to make your payments in the future.

  2. PK says:

    I’d aim for borrowing as much as possible from someone else – knowing that you’ll be able to pay it off. You’re still going to be in a high tax state, right? If so, the mortgage deduction pretty much comes for free (like here in CA). Not so with the 401k loan.

    I’m thinking your best tax equivalent yield is with the classic mortgage, nothing exotic.

    • Evan says:

      Other people’s money, huh? I am staying in New York so yes the deduction matters especially since the first year’s interest payments will be well above the standard deduction.

  3. It’s too bad you don’t live in Minnesota. They have a new loan program that I am taking advantage of where you can put less than 20% down and have no PMI.

  4. Don says:

    I’ve played around with the idea of borrowing money from my 401k and Roth IRA to purchase rental property… In fact, I think about it all the time. :(

  5. John says:

    Yeah, I’d never recommend that people borrow from their 401k to put more money down on a house. I hear the penalties are pretty high. Thanks for sharing your thoughts!

  6. Yup. Take it from me: don’t even think it.

    • Evan says:

      In light of our convo on your site (I wasn’t doing it to buy a home I couldn’t afford just to change my future monthly nut) do you still agree?

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