There’s another factor: although you may not pay a penalty for first-time buyer withdrawals from certain retirement accounts, you do pay taxes. If you have a good income this is 30% or more off the bat. Figure out how long you have to save/invest or what return you need to make back that 30%.
Assuming 6% interest, it takes over 6 years just to get back to even, assuming you pay 30% in taxes. In many cases it’s much worse (e.g. CA state marginal tax rate at 9.3%)
My guess is that tilts the spread much more than the 0.75% you figured.
My advice: Do not raid your retirement funds to pay down a house, unless it is in a year that you have little or no income so that you can minimize the taxes. When you buy, pay your house down as an ongoing living expense, just like you do with your rent today.
If you want to hedge your bets, raid your retirement for an amount that makes your mortgage roughly equal to rent after taxes. At the bottom this will likely be 20% down (as opposed to 50% today).
