6 ms·

I'm in an interesting position related to this. In Canada, most people lock into their mortgage rate for 3-5 years. After that, you've got to renegotiate a rat

by mabbo 7y ago

I'm in an interesting position related to this. In Canada, most people lock into their mortgage rate for 3-5 years. After that, you've got to renegotiate a rate but you're also free to switch banks. It's like starting over again at whatever you currently owe. I locked into mine 4 and a half years ago, so renewal is coming up this summer. Meanwhile, my home's value has skyrocketed (thanks to an insane Toronto housing market). What this all means is that in a few months, at my renewal date, the mortgage interests rates may be incredibly low (they're already at 2.7% today), my home's value is much higher than what I owe, and the stock market looks like it's going to be hitting the bottom around that time too. So the question is... do I gamble on this? I could easily access hundreds of thousands of dollars in a low interest mortgage and drop it all on index funds. If it worked, 10 years later I could retire early. If it doesn't, I'm another god-knows-how-many years away from paying off the mortgage. Mind you, my (sane, rational, smart-than-me) wife would never agree to any of this so it's only nice to think about.

Proziam 7y ago
I know someone who did this. It didn't work out and it's their single biggest financial regret in life.
- glouwbug 7y ago
  I've seen 6 people in the last 2 weeks on wallstreetbets gamble away their student loans. The sad part is one guy will post their success of doubling their student loan, and it will just cause a bunch of younger inexperienced 19 year olds to lose tens of thousands to their own gambles. It's really sad. It's an addiction
  - Proziam 7y ago
    For some, it is addiction. For others, they simply cannot fathom the risk they expose themselves to. They have no concept of the time, effort, and stress they will cost themselves over the course of their lives as a result of their error. Try explaining to a teenager that the 50k bet that costs them their chance at an education is actually them putting 1m+ at risk if you compound the effect over the course of their life.
    - owenmarshall 7y ago
      I think there’s a lack of understanding of markets as well. Great, you can toss 10k towards at it if you burn your student loans. GP might be able to toss 100k with a refi and investing his home equity. Market movers have plenty more zeros at their disposal. We are bugs and the best thing to do is to make decisions that don’t make us end up as splats on their windshield.
      - Proziam 7y ago
        All true. Even without the concern of competing against big money, there's always the simple fact that you can just lose a bet. Through a personal connection, I'm aware of a failed SAP implementation that cost a company their position on the DOW. You'd never consider that was a possibility as a teenager because SAP doesn't even exist in your universe yet.
  - Der_Einzige 7y ago
    Long term puts right now would be printing money for those kids. They just have to get a nice pair of diamond hands and some late April puts
    - glouwbug 7y ago
      Robin hands, you mean
    - ac29 7y ago
      Maybe. They could also make a lot of money playing roulette. I'm not sure one is a better idea than the other, though at least if you lose a lot of money in a casino, they'll comp you a room and some meals.
  - perl4ever 7y ago
    I remember someone describing the appeal of Robinhood to millennials - they said that buying some stock and having it go down was like "dropping your iPhone in the toilet".
owenmarshall 7y ago
You are essentially playing a poker game and buying in with the deed to your home. Sure, what’s the worst thing that could happen.
flyGuyOnTheSly 7y ago
Just pay off your mortgage and focus on things that you do understand well. It would not be prudent to invest the majority of your wealth into a recently broken bull market trend and try to catch the falling knife so to speak. The markets could recover in 10 years, or they could bleed out for another 10 years. If you actually had any inkling of which way the markets would move... you'd be retired already.
- christocracy 7y ago
  It doesn’t make sense to pay off the mortgage when money is essentially free, where interest rate is lower than inflation. I believe it does make sense to invest what you can now in a balanced and diversified 60/40 portfolio. The current market turmoil is mere noise in the long term. The fundamentals are still solid. Companies continue to make profits and hire people.
  - flyGuyOnTheSly 7y ago
    >The current market turmoil is mere noise in the long term. Which is exactly my point. Interest rates could skyrocket to 20% or more for yet another unknown unknown financial black swan event. Or your home could be worth 25% of what it is today before you know it. The ground could literally open up beneath your house and swallow it hole, leaving you with nothing but that massive debt obligation. (As most home insurance plans do not cover acts of god like sink holes). That's an insanely rare and extreme example, but I hope you get my point. It's best to get out while the getting-out is good. If you have a large debt obligation that your current home value can pay off right now and then some, get rid of that debt and create some real wealth. You've officially won the game of middle-class life at that point. Then you can dream about what to do with that wealth until the cows come home... once you're actually wealthy and have the time and money to theorize how to properly invest that wealth.
    - christocracy 7y ago
      I’m 48 and I rent a nice place at $2100/month. All my loot is invested in balanced 60/40. 0 debt. Absolutely, if you’ve won the house lottery, cash out now, invest and rent a nice place.
3fe9a03ccd14ca5 7y ago
I don’t think you should. A safer bet is to let your house ride, and either sell it or rent it as part of your retirement.
christocracy 7y ago
For the best Canadian financial advice, including variable vs fixed mortgage and investment strategies, read http://greaterfool.ca http://greaterfool.ca daily.
smabie 7y ago
Why would you ever want to pay off your mortgage? Mortgages are the best and cheapest way to get debt. Considering the rate environment, the rate risk isn’t a big deal, IMO. Hell, I would even go a step further: dump that 200k into a levered S&P 500 (2x should be good). Unless the world falls apart, you’ll definitely be a millionaire in 10 years. And if you do 3x, maybe even 5 years (that’s some more risk though). I can’t really imagine a world in which the annualized yield of SPY over 10 years is less than 2.7%. And like I said before, rates are only going down and that’s not going to change anytime soon. Of course a financial advisor wouldn’t tell you to do it but they don’t really care about you in the first place.
- charlesdm 7y ago
  If anything, depending on the market the risk is that the house actually goes down in value.
- Ididntdothis 7y ago
  "I can’t really imagine a world in which the annualized yield of SPY over 10 years is less than 2.7%." Seems your imagination is lacking. From 2000 to 2010 it was negative. I wonder if the current market is the only market you ever have seen. Housing prices also have collapsed not too long ago in the past.
  - smabie 7y ago
    You’re time period is very convenient, including two crashes and none of the recovery. That said, point taken.
    - Ididntdothis 7y ago
      Downturns in the market will kill you if you are leveraged. Once the money it's gone, it's gone and it will be hard to make it back. that is, unless you have a rich dad who gives you more money. That's why I think it's very important not to be naive with investment advice.
    - imtringued 7y ago
charlesdm 7y ago
At the end of the day it depends on what your risk appetite is. We've been on quite the bull run so in that regard I would say no, but given rates are super low and mortgage debt is cheap to come by (barely covers inflation), I honestly don't see why you wouldn't investigate it more. If you can make more than the mortgage interest rate, then it was worth it. Using debt is fine is you can stomach a potential drop in a liquid market. That is more psychological than financial, actually. Would you panic sell if your (leveraged) investment drops 30 or 50%? I've come to realise I wouldn't hence I would consider making that investment, but to each their own. This is less risky than using pure margin debt on your investments, because this can't be automatically liquidated.
graeme 7y ago
You might consider the Japanese experience. In the 1980s they had an asset price bubble fueled by loose monetary policy. The Nikkei never recovered from its peak. Is that probable? Perhaps not. Is it possible? Definitely. We have had an asset price bubble and loose monetary policy. Investing on margin is a mug’s game. You can’t realistically know when the bottom of a market is. Also, if an asset price bubble does pop, your home will likely go down a lot in value too. https://en.wikipedia.org/wiki/Lost_Decade_(Japan)#/media/File:Harga_Saham_Nikkei_225.png https://en.wikipedia.org/wiki/Lost_Decade_(Japan)#/media/Fil... Also: in the great depression stocks fell for 3-4 years. They didn’t recover until after world war II.
imtringued 7y ago
Just 3 years? Usually you can ask the bank to guarantee the current interest rate for up to 15 years. Of course you will have to pay a premium on top of the market rate interest but e.g. getting 3.3% instead of 2.6% is not a bad deal compared to being surprised 3 years later that your original 1.5% rate is now 2.5%. 1% additional interest on a $600k house could mean that your monthly payments go up by $500. That shouldn't be taken lightly. However, negotiating a different interest rate after 10 or 15 years often makes sense because you have already accumulated equity. You no longer owe interest on the full sum. If only $200k are remaining on the loan then your monthly payments would only increase by $167. If you want to get into the stock market then do it in a sustainable way. Don't try to time the market, you probably won't win a second time and lose your money before you have fully understood how the stock market works. Get a small financial buffer. Enough to stay unemployed for 6 months. Put the surplus into a conventional portfolio. If you don't care about the stock market but want to get your cut then focus on ETFs that index the market (S&P 500 is a classic) and put the rest in bonds. I recommend starting today. Just spend $100 on a random ETF to become familiar with the selling/buying workflow. Most important rule always do your own research. Let strangers (financial advisors, friends, maybe random people on the internet) help you figure out yourself but never take their word as the truth.

by mabbo 7y ago

Proziam 7y ago

I know someone who did this. It didn't work out and it's their single biggest financial regret in life.

glouwbug 7y ago
I've seen 6 people in the last 2 weeks on wallstreetbets gamble away their student loans. The sad part is one guy will post their success of doubling their student loan, and it will just cause a bunch of younger inexperienced 19 year olds to lose tens of thousands to their own gambles. It's really sad. It's an addiction
- Proziam 7y ago
  For some, it is addiction. For others, they simply cannot fathom the risk they expose themselves to. They have no concept of the time, effort, and stress they will cost themselves over the course of their lives as a result of their error. Try explaining to a teenager that the 50k bet that costs them their chance at an education is actually them putting 1m+ at risk if you compound the effect over the course of their life.
  - owenmarshall 7y ago
    I think there’s a lack of understanding of markets as well. Great, you can toss 10k towards at it if you burn your student loans. GP might be able to toss 100k with a refi and investing his home equity. Market movers have plenty more zeros at their disposal. We are bugs and the best thing to do is to make decisions that don’t make us end up as splats on their windshield.
    - Proziam 7y ago
      All true. Even without the concern of competing against big money, there's always the simple fact that you can just lose a bet. Through a personal connection, I'm aware of a failed SAP implementation that cost a company their position on the DOW. You'd never consider that was a possibility as a teenager because SAP doesn't even exist in your universe yet.
- Der_Einzige 7y ago
  Long term puts right now would be printing money for those kids. They just have to get a nice pair of diamond hands and some late April puts
  - glouwbug 7y ago
    Robin hands, you mean
  - ac29 7y ago
    Maybe. They could also make a lot of money playing roulette. I'm not sure one is a better idea than the other, though at least if you lose a lot of money in a casino, they'll comp you a room and some meals.
- perl4ever 7y ago
  I remember someone describing the appeal of Robinhood to millennials - they said that buying some stock and having it go down was like "dropping your iPhone in the toilet".

owenmarshall 7y ago

You are essentially playing a poker game and buying in with the deed to your home. Sure, what’s the worst thing that could happen.

flyGuyOnTheSly 7y ago

Just pay off your mortgage and focus on things that you do understand well. It would not be prudent to invest the majority of your wealth into a recently broken bull market trend and try to catch the falling knife so to speak. The markets could recover in 10 years, or they could bleed out for another 10 years. If you actually had any inkling of which way the markets would move... you'd be retired already.

christocracy 7y ago
It doesn’t make sense to pay off the mortgage when money is essentially free, where interest rate is lower than inflation. I believe it does make sense to invest what you can now in a balanced and diversified 60/40 portfolio. The current market turmoil is mere noise in the long term. The fundamentals are still solid. Companies continue to make profits and hire people.
- flyGuyOnTheSly 7y ago
  >The current market turmoil is mere noise in the long term. Which is exactly my point. Interest rates could skyrocket to 20% or more for yet another unknown unknown financial black swan event. Or your home could be worth 25% of what it is today before you know it. The ground could literally open up beneath your house and swallow it hole, leaving you with nothing but that massive debt obligation. (As most home insurance plans do not cover acts of god like sink holes). That's an insanely rare and extreme example, but I hope you get my point. It's best to get out while the getting-out is good. If you have a large debt obligation that your current home value can pay off right now and then some, get rid of that debt and create some real wealth. You've officially won the game of middle-class life at that point. Then you can dream about what to do with that wealth until the cows come home... once you're actually wealthy and have the time and money to theorize how to properly invest that wealth.
  - christocracy 7y ago
    I’m 48 and I rent a nice place at $2100/month. All my loot is invested in balanced 60/40. 0 debt. Absolutely, if you’ve won the house lottery, cash out now, invest and rent a nice place.

3fe9a03ccd14ca5 7y ago

I don’t think you should. A safer bet is to let your house ride, and either sell it or rent it as part of your retirement.

christocracy 7y ago

For the best Canadian financial advice, including variable vs fixed mortgage and investment strategies, read http://greaterfool.ca http://greaterfool.ca daily.

smabie 7y ago

Why would you ever want to pay off your mortgage? Mortgages are the best and cheapest way to get debt. Considering the rate environment, the rate risk isn’t a big deal, IMO. Hell, I would even go a step further: dump that 200k into a levered S&P 500 (2x should be good). Unless the world falls apart, you’ll definitely be a millionaire in 10 years. And if you do 3x, maybe even 5 years (that’s some more risk though). I can’t really imagine a world in which the annualized yield of SPY over 10 years is less than 2.7%. And like I said before, rates are only going down and that’s not going to change anytime soon. Of course a financial advisor wouldn’t tell you to do it but they don’t really care about you in the first place.

charlesdm 7y ago
If anything, depending on the market the risk is that the house actually goes down in value.
Ididntdothis 7y ago
"I can’t really imagine a world in which the annualized yield of SPY over 10 years is less than 2.7%." Seems your imagination is lacking. From 2000 to 2010 it was negative. I wonder if the current market is the only market you ever have seen. Housing prices also have collapsed not too long ago in the past.
- smabie 7y ago
  You’re time period is very convenient, including two crashes and none of the recovery. That said, point taken.
  - Ididntdothis 7y ago
    Downturns in the market will kill you if you are leveraged. Once the money it's gone, it's gone and it will be hard to make it back. that is, unless you have a rich dad who gives you more money. That's why I think it's very important not to be naive with investment advice.
  - imtringued 7y ago

charlesdm 7y ago

At the end of the day it depends on what your risk appetite is. We've been on quite the bull run so in that regard I would say no, but given rates are super low and mortgage debt is cheap to come by (barely covers inflation), I honestly don't see why you wouldn't investigate it more. If you can make more than the mortgage interest rate, then it was worth it. Using debt is fine is you can stomach a potential drop in a liquid market. That is more psychological than financial, actually. Would you panic sell if your (leveraged) investment drops 30 or 50%? I've come to realise I wouldn't hence I would consider making that investment, but to each their own. This is less risky than using pure margin debt on your investments, because this can't be automatically liquidated.

graeme 7y ago

You might consider the Japanese experience. In the 1980s they had an asset price bubble fueled by loose monetary policy. The Nikkei never recovered from its peak. Is that probable? Perhaps not. Is it possible? Definitely. We have had an asset price bubble and loose monetary policy. Investing on margin is a mug’s game. You can’t realistically know when the bottom of a market is. Also, if an asset price bubble does pop, your home will likely go down a lot in value too. https://en.wikipedia.org/wiki/Lost_Decade_(Japan)#/media/File:Harga_Saham_Nikkei_225.png https://en.wikipedia.org/wiki/Lost_Decade_(Japan)#/media/Fil... Also: in the great depression stocks fell for 3-4 years. They didn’t recover until after world war II.

imtringued 7y ago

Just 3 years? Usually you can ask the bank to guarantee the current interest rate for up to 15 years. Of course you will have to pay a premium on top of the market rate interest but e.g. getting 3.3% instead of 2.6% is not a bad deal compared to being surprised 3 years later that your original 1.5% rate is now 2.5%. 1% additional interest on a $600k house could mean that your monthly payments go up by $500. That shouldn't be taken lightly. However, negotiating a different interest rate after 10 or 15 years often makes sense because you have already accumulated equity. You no longer owe interest on the full sum. If only $200k are remaining on the loan then your monthly payments would only increase by $167. If you want to get into the stock market then do it in a sustainable way. Don't try to time the market, you probably won't win a second time and lose your money before you have fully understood how the stock market works. Get a small financial buffer. Enough to stay unemployed for 6 months. Put the surplus into a conventional portfolio. If you don't care about the stock market but want to get your cut then focus on ETFs that index the market (S&P 500 is a classic) and put the rest in bonds. I recommend starting today. Just spend $100 on a random ETF to become familiar with the selling/buying workflow. Most important rule always do your own research. Let strangers (financial advisors, friends, maybe random people on the internet) help you figure out yourself but never take their word as the truth.