Vacation Home Taxable Account Equities Sales

[JGS1980]

Hello MMM's.

Easy question?

I already have 25% down payment on a vacation home ready to go. This is invested in a Money Market account at my brokerage.

The interest rate will likely be in the 7.0% range for a 30 year fixed rate loan.

I also have additional equity investments with gains that I can liquidate to add to the down payment. This would lead to total decreased interest payouts over the life of the loan.  By my calculations, if I liquidate 100K in Equities with 30K in gains, I would pay 0.15 x 30K = $4500 in extra taxes the following year. Even after this liquidation, I'll have plenty of available liquidity in case of emergencies or need for repairs.

So, an extra 130K in down payment would lead to 130K x 0.070 = $9100 in interest savings just in the first year of the mortgage, with continued savings with each additional year until the mortgage is paid off.

Does this seem like a no-brainer?

Thanks for your input,

JGS

[muskrat]

I would look at the investment order thread.  Typically people prioritize paying off loans in the 7% range before investing (or keeping an investment.). I would take a guaranteed 7% (ignoring taxes) over investing in the market any day of the week.  One down side is you lose liquidity but if that is an issue you probably need to reevaluate the vacation home purchase.

[Dicey]

Why do you want a vacation home?

[GilesMM]

Not many "vacation" homes are no-brainers.  Most are alligators that eat money and take time away from more varied vacations.

[JGS1980]

Its more of an eventual retirement home that we can visit along the way. We will be able to rent it out at times as well to defer some of the costs. When our kids are done with high school and launched, we will sell our primary home and transition there. This is not a financial decision, it is a lifestyle decision.

[Dicey]

Yeah, I did that 20 years ago. Now we're not sure we want to move there. I figured I wouldn't be able to afford it by the time I was FIRE. Turns out,  it would have been better to invest in equities.