I have an opportunity to provide a private 30-year mortgage to my son at the current rate of about 7%. I would be using money that is currently in a portfolio of individual municipal bonds averaging around 5%. The amount of the mortgage would be about $750K. I live in NJ and about a quarter of the muni bonds are exempt in NJ.
How would I compare these two opportunities?
We have a portfolio in the high 7 figure range, roughly 60/40 equity/bond. Liquidity is not a concern in terms of tying up the $750K. We spend about 2.5% of our stock/bond portfolio. The cash flow from the mortgage offers some advantages vs. withdrawing from our taxable portfolio, such that we would lower our monthly withdrawal by about a third, to about 1.8% of the portfolio excluding the mortgage.
I think I understand the paperwork and annual income taxes I will be responsible for in terms of interest income I would be receiving. I will also need to provide my son with a tax statement so he can itemize his deductions.
My wife is 59 and I am 62. She did not work and I am retired. We are receiving about $80K per year from a deferred compensation (NQDC) until age 69. The additional income from the private mortgage would possibly push me from the 22% to 24% federal tax bracket for some of the income. The NJ tax rate is 6.37%.
I will start to collect SS at 69.5, when my wife turns 67, her FRA. She did not work, so she will get half of my FRA SS income.
My son is fine getting a mortgage from a bank. This is just a question is whether this is a sound investment on its own merits. I am not sure if I am missing anything or is it just the math of taxable returns with an annual income stream (annuity-like) vs. the beneficial tax treatment of the munis, and comparing the tax adjusted returns of both options. Also, when the current munis mature, I assume there is uncertainty about future rates.
(Just a note that the equities are mostly in a Vanguard Just Invest personal index. This is for tax loss harvesting purposes. So far so good based on recent market trends, although that may not be the case this year based on the overall performance of the stock market.)
I appreciate any input, and whether I am not taking something into account. I think I understand the risks on the human side, in terms of marriages that don't always last, not wanting to take recourse if they are unable to pay for any multitude of reasons. We accept that risk and would come to the rescue if necessary if a bank held the note.
Thanks
How would I compare these two opportunities?
We have a portfolio in the high 7 figure range, roughly 60/40 equity/bond. Liquidity is not a concern in terms of tying up the $750K. We spend about 2.5% of our stock/bond portfolio. The cash flow from the mortgage offers some advantages vs. withdrawing from our taxable portfolio, such that we would lower our monthly withdrawal by about a third, to about 1.8% of the portfolio excluding the mortgage.
I think I understand the paperwork and annual income taxes I will be responsible for in terms of interest income I would be receiving. I will also need to provide my son with a tax statement so he can itemize his deductions.
My wife is 59 and I am 62. She did not work and I am retired. We are receiving about $80K per year from a deferred compensation (NQDC) until age 69. The additional income from the private mortgage would possibly push me from the 22% to 24% federal tax bracket for some of the income. The NJ tax rate is 6.37%.
I will start to collect SS at 69.5, when my wife turns 67, her FRA. She did not work, so she will get half of my FRA SS income.
My son is fine getting a mortgage from a bank. This is just a question is whether this is a sound investment on its own merits. I am not sure if I am missing anything or is it just the math of taxable returns with an annual income stream (annuity-like) vs. the beneficial tax treatment of the munis, and comparing the tax adjusted returns of both options. Also, when the current munis mature, I assume there is uncertainty about future rates.
(Just a note that the equities are mostly in a Vanguard Just Invest personal index. This is for tax loss harvesting purposes. So far so good based on recent market trends, although that may not be the case this year based on the overall performance of the stock market.)
I appreciate any input, and whether I am not taking something into account. I think I understand the risks on the human side, in terms of marriages that don't always last, not wanting to take recourse if they are unable to pay for any multitude of reasons. We accept that risk and would come to the rescue if necessary if a bank held the note.
Thanks
Statistics: Posted by Brian1arc — Sun May 19, 2024 12:17 pm — Replies 2 — Views 143