larger mortgage down payment vs investing

THE THRIFT SAVINGS PLAN ALLOCATION GUIDE Forums Message Board larger mortgage down payment vs investing

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This topic contains 2 replies, has 2 voices, and was last updated by  TS Paul 8 months, 3 weeks ago.

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  • #30456

    juan.d.
    Participant

    Just curious to get everyone’s opinion.

    I’m thinking of buying a house. I can put 20% down to avoid mortgage insurance, but the monthly payment is higher than I feel comfortable with. Is it worth selling off some of my non-retirement investments–30 to 40K in mutual funds–to put additional money down to have a smaller monthly payment? Or does it make more sense to have a larger monthly payment but continue to have those investments.

    With just 20% down, I will probably need to rely on some of my wife’s monthly income to make the mortgage payments. By making a greater than 20% down payment, I have a smaller monthly mortgage payment and that in theory gives my wife the option to work part-time if we have kids and we don’t really need her salary to cover the monthly mortgage payment.

    Any thoughts would be appreciated,
    -jd

    #30457

    juan.d.
    Participant

    Also, one clarification to my above post. I currently max out my tsp contributions. With the larger down payment–more than 20%–i could likely continue to max out my TSP or come close; however, with a 20% down payment I could make the larger monthly mortgage payment w/o relying on my wife’s salary by decreasing my TSP contributions.

    #30547

    TS Paul
    Keymaster

    From a straight math standpoint, let’s say you expect a 10% annual return on invested money and you are going to be paying 4% on your mortgage. That’s a 6% swing in favor of borrowing more so that you can have more invested.

    But there are always a lot of other factors in a decision like this – in your case the flexibility for your wife to work part time – which might outweigh the math.

    From my personal experience, I thought I was getting the largest mortgage I could possibly afford, but within a year or two it was very affordable through a combination of pay increases and those much-maligned automatic step and grade increases we feds get.

    The TSP Allocation Guide www.TSPallocation.com

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