Choosing mortgage size vs. ETF Investments

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Cintrapark
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Choosing mortgage size vs. ETF Investments

Post by Cintrapark » Fri Oct 06, 2017 11:07 am

Age: 41
Sex: Male
Country of Residence: Israel
Pension Balance: $85,000
Work related Investment Account: $20,500
Emergency Fund: $10,000
ETF Investments: $26,000 (75% VWRD and 25% SAAA)
Apartment downpayment (Savings): $823,000
Apartment Cost: $630,000

Total Monthly Retirement Savings: $2,701 (includes ETF investments, work-related investing account and pension)

Hi guys

I bought an apartment in central Tel Aviv which will be ready in 10 months. I'm lucky to have quite a significant downpayment. The question is this: Do I use the entire downpayment to have a small mortgage, or do I instead place a 60% downpayment and place the rest in my personal investments. Early retirement is a dream, however, at this rate I'm not sure how soon it can happen. I only manage to place $850 in my personal investments every month.

FYI - I imagine the interest rate for the mortgage to be around 3.5%.
Last edited by Cintrapark on Fri Oct 06, 2017 11:23 am, edited 1 time in total.

mega317
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Re: Choosing mortgage size vs. ETF Investments

Post by mega317 » Fri Oct 06, 2017 11:15 am

This isn't a complete picture of your finances but I gotta say a 630k apartment when your entire savings is less than 1M and you're only saving $850 a month seems like a mistake.

But what you're ask is just a question of pay down debt vs. investing
https://www.bogleheads.org/wiki/Paying_ ... _investing

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unclescrooge
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Re: Choosing mortgage size vs. ETF Investments

Post by unclescrooge » Fri Oct 06, 2017 11:18 am

Is the mortgage interest tax deductible?

Does your income support the mortgage with 40% down?

Cintrapark
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Re: Choosing mortgage size vs. ETF Investments

Post by Cintrapark » Fri Oct 06, 2017 11:23 am

mega317 wrote:
Fri Oct 06, 2017 11:15 am
This isn't a complete picture of your finances but I gotta say a 630k apartment when your entire savings is less than 1M and you're only saving $850 a month seems like a mistake.

But what you're ask is just a question of pay down debt vs. investing
https://www.bogleheads.org/wiki/Paying_ ... _investing
You're correct, that wasn't clear. I have added a line at the end that shows my total monthly savings

Cintrapark
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Re: Choosing mortgage size vs. ETF Investments

Post by Cintrapark » Sat Oct 07, 2017 2:42 am

unclescrooge wrote:
Fri Oct 06, 2017 11:18 am
Is the mortgage interest tax deductible?

Does your income support the mortgage with 40% down?
I believe it isn't tax deductible. Yes my income does support the payment, however, my goal is to be financially independent so that I do not need to rely on finding a well paid job.

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unclescrooge
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Re: Choosing mortgage size vs. ETF Investments

Post by unclescrooge » Sat Oct 07, 2017 9:10 am

Cintrapark wrote:
Sat Oct 07, 2017 2:42 am
unclescrooge wrote:
Fri Oct 06, 2017 11:18 am
Is the mortgage interest tax deductible?

Does your income support the mortgage with 40% down?
I believe it isn't tax deductible. Yes my income does support the payment, however, my goal is to be financially independent so that I do not need to rely on finding a well paid job.
It send you can afford this house.

However....

If your goal is to be financially independent at an early age, then saddling yourself with a large house is not the way to go.

A large house owns you, due to the constant upkeep, cleaning and property taxes.

When my wife choose our first house, I told her it would set back our retirement by a decade. She was okay with that. Early retirement is not a high priority for her.

You need to decide which is more important to you.

Or, if you think you can rent out some of the rooms in the house, then maybe it might be a good investment that helps your goals. But baring that, it seems like the two are at cross purposes.

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whodidntante
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Re: Choosing mortgage size vs. ETF Investments

Post by whodidntante » Sat Oct 07, 2017 10:19 am

Having that much cash has a tremendous opportunity cost if you saved it over a long time period (TVM). But not if you just acquired it.

You cannot directly compare a risk free investment with a risky one so it is largely a function of preference. Search for the frequent "should I pay off my mortgage" threads to get an understanding of the issues involved. I am in the camp that prefers to retain a large amount of low interest debt as leverage.

Cintrapark
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Re: Choosing mortgage size vs. ETF Investments

Post by Cintrapark » Sun Oct 08, 2017 5:40 am

unclescrooge wrote:
Sat Oct 07, 2017 9:10 am
Cintrapark wrote:
Sat Oct 07, 2017 2:42 am
unclescrooge wrote:
Fri Oct 06, 2017 11:18 am
Is the mortgage interest tax deductible?

Does your income support the mortgage with 40% down?
I believe it isn't tax deductible. Yes my income does support the payment, however, my goal is to be financially independent so that I do not need to rely on finding a well paid job.
It send you can afford this house.

However....

If your goal is to be financially independent at an early age, then saddling yourself with a large house is not the way to go.

A large house owns you, due to the constant upkeep, cleaning and property taxes.

When my wife choose our first house, I told her it would set back our retirement by a decade. She was okay with that. Early retirement is not a high priority for her.

You need to decide which is more important to you.

Or, if you think you can rent out some of the rooms in the house, then maybe it might be a good investment that helps your goals. But baring that, it seems like the two are at cross purposes.
Hi

Not sure I understand? It's not a large house at all. It's a 72sqm apartment. There won't be much upkeep at all and there'll only be 2 bedrooms. Unfortunately, those are the prices in Tel Aviv

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unclescrooge
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Re: Choosing mortgage size vs. ETF Investments

Post by unclescrooge » Sun Oct 08, 2017 10:26 am

There's no right answer.

Most here will tell you to pay cash for your house.

However, over 30 years there's a good chance that stocks will outperform your 3.5% mortgage. But realize that nothing is guaranteed.

It's a question of whether you're comfortable with this level of risk.

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