vendredi 13 novembre 2020

Using the money they lend you for almost nothing

I believe that disciplin and strategy are as important as stock picking.  

That post is for those who own a house and have some flexibility to increase their mortgage. I know, I've written about that before, but this time, my example is more precise. To me, that strategy can have the same effect as invest money on a super great stock. 

For instance, a mortgage increase of 100 000$ at a 5 years rate of 1,89% with a term of 10 years implies that you pay 10 000$ of interests (which is very low). There's virtually no use of paying down your debt with such a low rate. For instance, if you reduce your mortgage by 5000$, you'll save only 500-600$ of interests on  a 10 years time frame. 

What's the use of paying down debt under these circumstances?

With such low interest rates, a person who knows how to manage money should take some debt and invest on the market. 

If you own a house and you can borrow more money on your mortgage without having to finish paying your house at 70 or 80, this is for you. Why not add 100 000$ to your mortgage and invest that money?

100 000$ invested on a fund that reproduces the TSX should return about 8% on the long term.

100 000$ borrowed implies that you have to pay about 10 000$ of interests during 10 years.

These 100 000$ invested on a fund that reproduces the performance of the TSX should become about 215 000$ after 10 years. Substract the 10 000$ of interests and you'll double your money without a lot of risk. Isn't it crazy? 

I strongly recommend to anybody that lives a frugal life and is not too much indebted to do that. You do that at 25 or 30 and you'll be richer than all your high school friends and even your parents when you'll be 40. Later, when you'll be 60, you'll be able to buy a mustang and fuck 20 years old girls. 

Think about the future!

2 commentaires:

  1. No. That's bad advice. Rates may well move higher. Keep your amortizing at 20 years ideally. No more than 25 years. Live within your means.

  2. I wish I had a house and if I did I would easily have taken out 1/3 or up to 1/2 of equity for HELOC in March 2020.

    Own house?
    Have HELOC open. It will come in handy in 5-10 years...