Is it a good idea to keep the cash after selling a house?

[Anonymous]

We're selling a house and buying a new one. For the new one we can pay 50% of the cost in cash from the sale of the old one.

My DH has gotten this idea that we should only make the down payment of 20% and keep the extra cash. No specific reasons or purchases, just when you need cash it's hard to come by, so it's a unique opportunity to get cash. You can always pay off the mortgage.

I think the money sitting in a savings account or CDs will not be generating enough interest to cover its inflation.

What do you think?

[Anonymous]

I think your husband is correct, as long as the plan is to invest the money. If you're literally going to park it in a savings account, then no, it's not a good idea.

[Anonymous]

How old are you? When do you plan to retire? What term new mortgage are you thinking about? How are you with money?

Personally, I would out down the money and then get a shorter-term loan (15 or 20 year) and get the debt gone. I'm looking at a mortgage that extends more than ten years past mandatory retirement for me, and I don't like it. I should be able to go right back to a new job, but you never know. I figure I can sell and move to a smaller place if I have to (and probably will want to do).

[Anonymous]

OP here. We're in 40-50 range. We don't have any other debt. Our mortgage will be about 3% for a 15 year loan.

[Anonymous]

I agree with your husband, but not about putting it in CDs. If you can make a better interest rate than what you would pay on your mortgage (over 3%), you're doing well. And given you can deduct the mortgage interest, even better in reality. I'd just do some relatively safe stocks/bonds...

[Anonymous]

Keep the cash and put it in total market stock and bond funds, maybe 70/30%. You will come out ahead. The main reason, though, to keep the cash is liquidity. If you need the money, you have it. If the money is in a house, you don't, not easily.

[Anonymous]

You guys could hedge your bets and split the difference. Put down 35% to reduce payments and reduce the overall interest paid (a sure thing) and keep the other chunk for investing.

[Anonymous]

Your DH is 100% correct. Remember that your downpayment is stagnent - does not grow in value. you put $100K in, you get $100K back.

On top of that, and probably more importantly, having cash on hand provide you with a tremendous amount of freedom and mental peace.

[Anonymous]

Ask an accountant. There could be tax penalties for not reinvesting in your new home.

[Anonymous]

Your husband is nuts, as are many of the previous posters.

[Anonymous]

Anonymous wrote:Your husband is nuts, as are many of the previous posters.

I agree, I am working hard to fully pay my mortgage off.

[Anonymous]

Anonymous wrote:Ask an accountant. There could be tax penalties for not reinvesting in your new home.

Not for selling your personal residence and buying another personal residence.

OP, how much do you have in liquid emergency savings and how much in retirement?

[Anonymous]

If you are behind on your retirement planning it makes total sense to pull what you don't need and invest it, as you don't have many more years to invest aggressively. If you are going to dump it in a bank account, that is not a great idea. NFCU has CDs at 3%, but you would still be losing, unless access to cash is important short term for you.

There are NO tax ramifications from not rolling over previous equity into a new property, not sure where PP came up with that. All the IRS cares about is capital gains, which should not be a problem of you have lived the house the past 3 out of 5 years (have to look it up, but I think that is the rule) and it doesn't sell for more than 500k over what you paid for it.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Ask an accountant. There could be tax penalties for not reinvesting in your new home.

Not for selling your personal residence and buying another personal residence.

OP, how much do you have in liquid emergency savings and how much in retirement?

We have a 6 months emergency fund and my husband's retirement contributions are maxed out. I don't have a retirement because I work off and on.

[Anonymous]

Anonymous wrote:If you are behind on your retirement planning it makes total sense to pull what you don't need and invest it, as you don't have many more years to invest aggressively. If you are going to dump it in a bank account, that is not a great idea. NFCU has CDs at 3%, but you would still be losing, unless access to cash is important short term for you.

There are NO tax ramifications from not rolling over previous equity into a new property, not sure where PP came up with that. All the IRS cares about is capital gains, which should not be a problem of you have lived the house the past 3 out of 5 years (have to look it up, but I think that is the rule) and it doesn't sell for more than 500k over what you paid for it.

Correct, but it's two of the past five years.