Hello!
So after years of trolling I finally registered for this site. I am desperately seeking help with buying a second property. This is not (sadly) an investment property, but we are buying it for family members to live in (who are currently in a terrible living situation). They will be paying us a small rent but not enough to cover mortgage and taxes. But that's ok. If helping our family delays our retirement by a few years, we're ok with that. Karma, etc. Anyway. I don't know the best way to pay for the house. Budget is around $200k.
Option 1: Take all of our cash + borrow from our 401k to make the biggest downpayment possible, making the mortgage itself as low as possible (around the $100k mark). Pros: interest paid on the 401k loan go back to us, not to the bank. Con: that money won't be growing for the next few years
Option 2: Make the requisite 20% downpayment and take a $160k mortgage, paying it over 15 years (we think we want to do a 15-year), letting our 401k and other investments grow. Rates I got quoted were around 3.6 percent for a 15-year fixed. This seems like a lot of money ultimately going to our bank, which doesn't sit well with me.
Option 3: Make a 20% downpayment and take a 5-year ARM while rates are good, paying off the house before the 5 years is up (this is doable). Cons: our own house mortgage rate will be higher than the new house, because we bought a few years ago. So it would make more sense (maybe?) to pay the higher-interest loan off first?
I can't figure out if saving the interest money from taking a smaller mortgage offsets the money that we would lose from not letting the 401k grow. For what it's worth, if we are aggressive about it, we can probably pay off the house in 2-3 years. Maybe 4-5 if we have another kid next year (daycare + college savings = $3500/month for one kid now).
We have no desire to invest in real estate (at least at this point), which is why I know nothing about it, and trying to educate myself on the best way to go about this is making my head spin. So thanks in advance!!
p.s. You people in this forum are the reason I was able to pay off $215,000 in college/medical school debt in under two years, including 5 months of (unpaid, cause I'm American) maternity leave. So thanks!! I just chuckle when coworkers grumble about their insurmountable educational debt. Mwahahaha.