I have about $50,000 in a tax-deferred annuity that earns 8.25% interest.
I am allowed to borrow from this as a first time home buyer.
I then have to pay 8.25% interest on the loan but I pay it back to myself.
Is this smarter then taking out a regular loan?
I am 29, and I want to be very secure in retirement.
Answer:
The last thing you want to do to take out money from a retirement fund. You will be eating in to your future returns and it doesn’t matter that you will have to repay yourself with interest.
If you have good credit, you should be able to get a reasonable rate on a home loan. This option is by far better than taking money from a retirement account.
Another Answer:
Let’s say that a wise person might use the $50,000 to invest into a bargain of a house that will double or triple in value as soon as the economy picks up in a few years.
On the other hand, a fool might use the $50,000 to invest into a wreck of a house which will suck up all energies through all sorts of factors and end up in ruin within 5 years.
So, without knowing what the house is like and what your financial situation is like, I don’t really know.
One thing is sure, 50k at 8.25% will never earn enough to guarantee a very secure retirement and right now it is the BEST time to buy a house, but you must be able to BUY.
In other words..
You don’t have to buy something that’s worth $34k and pay $50k for it.
Instead you should be capable of buying something that’s worth $96k and pay $40k for it.
{ 2 comments… read them below or add one }
You’re not paying that interest back to yourself. I suspect you’re only getting the down payment from that. Look very carefully at the repayment plan to see how much of your early payments are principle, I bet it’s VERY little early on.
If you’re really getting 8.25% these days, I’d say leave it alone. The holder of that annuity wants you to deplete it. If you can get a regular loan, that’s probably better.
These days it’s a buyer’s market in many places. Do research on the property’s historic value so that you know it is still not overpriced.
When it comes to major financial transactions…TRUST NO ONE!!!!
(especially folks like me =) Check and double-checkyour info and do business only with reputable organizations….if you can find them.
Basically, leave that annuity alone for now. Do be aware that tax laws and regulations on tax-deferred instruments will probably change, so stay informed.
You’d be missing out on all the low prices your contributions are buying in this market. You could get a mortgage depending on your credit score lower than that. I’d check into getting a home loan as opposed to borrowing from a retirement plan.