4 ms·

I realize this is hypothetical, but I’d run the numbers before putting that much down… If you do 20%, you can put the rest in an index fund which will probably

I realize this is hypothetical, but I’d run the numbers before putting that much down… If you do 20%, you can put the rest in an index fund which will probably earn more than the interest rate on the loan. (Though at this point it’s going to be close.)

Beached 3y ago
this depends on the rates. with high interest rates, if they have bad credit and get a rate 7% or higher for a mortgage, it may be better to put more down. historical average is 7% over. long period of time (30 years). if OP thinks refinancing into a low rate isn't an option 10 years from now, lower mortgage may be the way to go
maerF0x0 3y ago
IMO the real value of a high leverage mortgage is that you can buy sooner. Saving even 20% ($100k) could take many people 5 years. so saving 60% would take 15. Part of the trade off is life momentum. We can't be spending 15 years with life goals/dreams on hold, renting means a lot of moving, being subject to landlords' whims, and generally being treated as commodity cattle for profit.
- lotsofpulp 3y ago
  > We can't be spending 15 years with life goals/dreams on hold, renting means a lot of moving, being subject to landlords' whims, and generally being treated as commodity cattle for profit. This is reality for a lot of people.
  - turnsout 3y ago
    Renting is also a better deal for a lot of people (no building maintenance, no special assessments, flexibility to move around more, etc). The idea that home ownership is a good investment is a crapshoot at best and a myth at worst. It works out well for some people, but they may have done even better renting and investing in equities. I say this as a homeowner who (perhaps irrationally) likes the idea of owning a home.
    - incahoots 3y ago
      I'd argue renting is best for those who aren't looking to stay in a place longer than 5 years. If you're sticking to the community for 10+ years, its evident to purchase a home/condo.
      - bluefirebrand 3y ago
        I dunno. I bought my house in 2018 for 400k and now it's being appraised at 550k and I'm planning to sell and buy a house elsewhere with my girlfriend. Pretty lucky for sure, but even if the increase wasn't this dramatic it would have still been better than renting...
        maerF0x0 3y ago
        Btw this a fallacy/bad accounting that many home owners fall into. Most say $550K sale price minus $400K purchase price == $150K profit. But you need to remove: Taxes, maintenance, cost of your time (if you value that at all), realtors fees, HOA, bank fees/insurance, home insurance, depreciation on purchases you only had because of home ownership (tools, lawn mower etc). Once you remove those it's hard for home ownership to make financial sense relative to investing in the stock market + renting. However, and this is discussed in another thread, homeownership is a lifestyle choice, and we should be ok with making financially suboptimal choices for the sake of a quality life. We just need to keep clear it's an expense for a purpose, not an investment for financial gain. If we overspend on house liability it's no different than overspending on cars or food or travel.
        frumper 3y ago
        It makes a lot of financial sense when it's leveraged. That fictional 150k profit was on 5-20% down of the purchase price, plus the payments made until sale. If you live in it for 2 years you avoid capital gains taxes, and if you go the other route of renting it out you deduct expenses.
        bluefirebrand 3y ago
NoboruWataya 3y ago
Unless it doesn't, of course. Viewed from this perspective, putting more cash down so as to lower your mortgage is effectively an investment with a guaranteed X% return, where X% is the interest rate on your mortgage. I realise that on average the index fund is likely to outperform it over the long run, but a lot will depend on your attitude to risk.
- turnsout 3y ago
  Yes, true—the difference is, if the market stagnates you can take money out of the index fund and apply it to your mortgage at any time, whereas if you do a large down payment upfront, you can't change your mind later.
  - wizofaus 3y ago
    Isn't that what remortgaging is?
    - turnsout 3y ago
      Sort of, but you have no guarantee that you can get a comparable rate.
bgirard 3y ago
You have to look beyond the interest rate. If you have a 2.5% rate, your mortgage will inflate away while you could be earning 8-12% returns. If your mortgage rate is 6%, your marginal tax rate is 50% and you're earning 4-8% returns after tax, then a risk free, tax free return of 6% by paying off your mortgage is more attractive.

Beached 3y ago

this depends on the rates. with high interest rates, if they have bad credit and get a rate 7% or higher for a mortgage, it may be better to put more down. historical average is 7% over. long period of time (30 years). if OP thinks refinancing into a low rate isn't an option 10 years from now, lower mortgage may be the way to go

maerF0x0 3y ago

IMO the real value of a high leverage mortgage is that you can buy sooner. Saving even 20% ($100k) could take many people 5 years. so saving 60% would take 15. Part of the trade off is life momentum. We can't be spending 15 years with life goals/dreams on hold, renting means a lot of moving, being subject to landlords' whims, and generally being treated as commodity cattle for profit.

lotsofpulp 3y ago
> We can't be spending 15 years with life goals/dreams on hold, renting means a lot of moving, being subject to landlords' whims, and generally being treated as commodity cattle for profit. This is reality for a lot of people.
- turnsout 3y ago
  Renting is also a better deal for a lot of people (no building maintenance, no special assessments, flexibility to move around more, etc). The idea that home ownership is a good investment is a crapshoot at best and a myth at worst. It works out well for some people, but they may have done even better renting and investing in equities. I say this as a homeowner who (perhaps irrationally) likes the idea of owning a home.
  - incahoots 3y ago
    I'd argue renting is best for those who aren't looking to stay in a place longer than 5 years. If you're sticking to the community for 10+ years, its evident to purchase a home/condo.
    - bluefirebrand 3y ago
      I dunno. I bought my house in 2018 for 400k and now it's being appraised at 550k and I'm planning to sell and buy a house elsewhere with my girlfriend. Pretty lucky for sure, but even if the increase wasn't this dramatic it would have still been better than renting...
      - maerF0x0 3y ago
        Btw this a fallacy/bad accounting that many home owners fall into. Most say $550K sale price minus $400K purchase price == $150K profit. But you need to remove: Taxes, maintenance, cost of your time (if you value that at all), realtors fees, HOA, bank fees/insurance, home insurance, depreciation on purchases you only had because of home ownership (tools, lawn mower etc). Once you remove those it's hard for home ownership to make financial sense relative to investing in the stock market + renting. However, and this is discussed in another thread, homeownership is a lifestyle choice, and we should be ok with making financially suboptimal choices for the sake of a quality life. We just need to keep clear it's an expense for a purpose, not an investment for financial gain. If we overspend on house liability it's no different than overspending on cars or food or travel.
        frumper 3y ago
        It makes a lot of financial sense when it's leveraged. That fictional 150k profit was on 5-20% down of the purchase price, plus the payments made until sale. If you live in it for 2 years you avoid capital gains taxes, and if you go the other route of renting it out you deduct expenses.
        bluefirebrand 3y ago

NoboruWataya 3y ago

Unless it doesn't, of course. Viewed from this perspective, putting more cash down so as to lower your mortgage is effectively an investment with a guaranteed X% return, where X% is the interest rate on your mortgage. I realise that on average the index fund is likely to outperform it over the long run, but a lot will depend on your attitude to risk.

turnsout 3y ago
Yes, true—the difference is, if the market stagnates you can take money out of the index fund and apply it to your mortgage at any time, whereas if you do a large down payment upfront, you can't change your mind later.
- wizofaus 3y ago
  Isn't that what remortgaging is?
  - turnsout 3y ago
    Sort of, but you have no guarantee that you can get a comparable rate.

bgirard 3y ago

You have to look beyond the interest rate. If you have a 2.5% rate, your mortgage will inflate away while you could be earning 8-12% returns. If your mortgage rate is 6%, your marginal tax rate is 50% and you're earning 4-8% returns after tax, then a risk free, tax free return of 6% by paying off your mortgage is more attractive.