What happens if you took 200,000 from your "stash" and paid off your house with it, can you live off the remaining 1 Million with the 4% Rule? Don't forget you no longer have a mortgage so that part of your annual budget should shrink drastically, of course still leaving some money in for maintenance and what not...
THIS IS NOT A SUGGESTION!!!! I am just curious what happens to the numbers!
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Simple enough to run two scenarios here:
(note: we're assuming equal closing costs here)
Scenario 1: Downside to home valued at $200k - pay for it in cash
Investments:$1MM
Budget (based on 4%): $40,000/year
Scenario 2: Downsize to home valued at $200k - get a 30y mortgage at 3.7% (prime is currently 3.59%)
Investments: $1.2MM
Mortgage payments: $11,046
Principle paid (yr 1): $3,660
Budget (based on 4%): $48,000
Qualify for mortgage deduction: Yes, in full for first 9 years.
Net difference: -$3,046 ($8,000 - $11,046)
Quick conclusions: Paying for the house in cash gives you about $3k more in spending per year. However, even in year 1 that spending is offset by payment of principle and (if applicable) the mortgage interest deduction. This will improve each year There's no 'right' answer. Scenario 1 gives higher initial cash flow while Scenario 2 yields far more money over the 30 year timeframe.