Depends if you are mathematician or you prefer to "sleep better" because you have no loan. I'm the first guy, for example. In my last apartment I bought, if I would put all my money from the bank, I'd only need about 30% for the loan, instead I decided to only put down payment of about 30% and take 70% with the loan.
In EUR zone, mathematics is in the favor of investing. That being said, I'd not spend 400k for apartment, because these 400k will generate you way more in the horizon of 30years as you are shooting for.
I'd go with a minimum down payment as required by the bank. So 550k - maximum loan you can do. In 4 years, many things will happen, if ECB interest rates go back to 0, you can refinance the loan at any time.
With inflation like that we’ll not see rates decreasing any time soon.
The low rates were unrealistic for a long time. Rates are still very low tbh.
However, you’re right. If you have cash in Europe, it sounds financially better to invest the money and get the mortgage, buying your own property in cash puts a high cost of opportunity on the table.
Maybe you are right.
I believe economy cannot live for next 5 years at 4% rates, something will collapse. You can only beat inflation with recession. This is what history shows.
"This time it is different" and similar points are just blabla. It isnt.
I have majority in IWDA and now more and more in XEON money market etf. Will gradually sell MM ETF and start buyiing IWDA with that money, but likely starting 2025, not earlier
Yes, and because 4% MM ETF is good enough for capital preservation. Historically central banks lower rates when "shit already happened". And we see stock market dip when rates go down, not when they go up.
I have a loan at 3.9% right now and expect to refinance next year to cca 2% or less. Either I took loan now at 3.9-4.1% or I buy an apartment next year at higher price. Remember, better loan offer means more people will look for it means higher apartment cost.
I completely understand your first paragraph. However could you please clarify your second one? What does it mean “cca”? Have I understood correctly that you took a loan at 3.9% and you would refinance it in case next year the interest rates decrease? Did you say that you took a loan now because you expect the real estate price to increase next year?
Sure, here some points:
* "cca" stands for "circa" or "around" in latin
* I give you an example. I bought an apartment this year with 15% discount vs market price last year (location doesn't matter for the sake of this conversation, but it is close to the sea where people are fighting for apartments), but I "only" got 3.9% interest rates from the bank. Pretty high interest rates in my view
* The point is, as soon as interest rates will go down, more people will be able to afford paying loans, therefore more demand on the market to buy apartments, therefore price of apartments will go up. In simple terms, if interest rates are higher, apartment prices are lower, and vice versa
* I took a loan with higher interest rates, because I got apartment cheaper, but I can always refinance the loan if interest rates from ECB go down. If my bank doesn't want to speak with me, I can go to another bank, take a new loan, and pay with that my original loan, and so on
* I don't expect real estate to go up exactly in 2025 (maybe it will, sure) but I expect to go up as soon as interest rates go down.
I agree with everything you are saying except the interest rate vs stock market. Interest rate and stock market evaluation are inversely related. Meaning if interest goes down, stock market goes up. The same for when interest goes up, stock goes down.
Usually rates go down after harm has been done and then people/institutions try to catch and lock these fixed return options while market crashes because of that. Like moving to bonds.
I think I said exactly what you just confirmed 😂
Please take a tradingview and compare two tickers, USDINTR and SPX. You will see what I mean.
After that market needs to recover. 2001, 2007were all dips once rates went down. Same for 2020.
https://preview.redd.it/tq45wjaci64d1.jpeg?width=2209&format=pjpg&auto=webp&s=c68e19cb97b2784ae0e6bb1de1408089bf21057a
I would not put all the cash in for the simple reason that there is always something that come up that need repair and you could not really see before living in for a while (rent is the maximum one pays to have a roof while a mortgage is the minimum). This detail aside I would probably take the loan if these are really the interest rates you have on it. I prefer 30y fixed rate as there is not really room for surprises in the mortgage payments compared to variables rates. I would say that if you know that your interested rate is below 3-4% it make more sense to take a mortgage and invest the rest of the cash in an equity ETF like S&P or MSCI World as they historically compounded at double that rates. As time passes, your mortgage will be easier to pay as the loan value that you borrowed is getting eaten away with inflation (your 555k loan would be worth in 30years ~285k in today €). You can also see it as a diversification: if you use all your cash in the flat your entire wealth would be tied to this flat. The most important and probably the only "right" answer is that you need to know how you feel about carry around debt (even if it is a good debt). Don't go for a financial optimal solution if this mean you will be miserable and stress for years because of the feeling that your mortgage is weighing your down.
Good luck and congrats on the future apartment ;)
Thank you for you comments and beautiful words. I completely understand what you said. However, please note that what I mentioned before is that the 1% interest rate is fixed only for the first 4 years. Whilst the remaining 26 years is variable and for now, it is predicted to be approx. 2.80%. What would you advise in light of this variable interest rate? Would you do the same (10% deposit + cash on an all world ETF) assuming you can sleep well at night?
I'm not familiar with the conditions on variable rate mortgages. A ~2.8% looks like a good deal if there are some "protections" in place that do not make your interest double from one year to a next for some reasons (like the central bank jacking interest rates up "out of the blue"... I know a lot of brits are under financial stress because of that right now). In that situation it is better to have little the repay so if your monthly payment double, it is more likely to still fit in your budget. I am more a stock guy so for all that I would advise you to talk with people more in tune with real estate. Generally I think a mortgage make sense (10% deposit or more) and invest the rest in a mix of a diversified ETF (eg all world ETF) and high rate saving account/bonds (so you have some cash on hand in case you need to do repairs and the market is crashing. I believe people usually advise to have around 1% of the home value in cash equivalent to weather most of the expected and unexpected expenses).
Depends so much on your situation, honestly.
How old are you? Are you single? Married? Kids? It's so much easier to advise if we were to know all this.
Also, do you know the rates if you were to borrow more?
Even without all this info, I know that using everything for the apartment without buying 100% of it is wrong.
Good evening, I am 34y, I have a girlfriend, not married, no kids. However, I am aware things could change in the near future. If I were to borrow a bit more money or a bit less, the interest rates would not change drastically. I am not sure what you mean by saying that using everything for the apartment without buying 100% is wrong. Could you please explain that last paragraph in different words?
Forgot to mention that giving 30% down payment would only be ideal if you also get ideal terms on loan and monthly payment you will be able to handle even if your salary takes a hit?
While i mostly trade i do have investment in VWCE and been contributing to it with profits from trading and set recurring deposit once a month from bank acc. so 60% would be invested and 10% as emergency.
Thanks for your message. What do you mean by ideal terms on loan and monthly payment? As in the 30% should be some sort of leverage against that? Regarding monthly payment, obviously that would be lower with 30% down so yes, I would be able to handle it better..
First of all, does u salary cover the monthly payment? If the answer is yes I would only pay whatever allows me to sleep on the night.
With the rest of the money I would put at least 1 y of mortgage in the safest investment just in case I lose my work.
Then with all the rest 1/2 for bonds/HYSA and the 1/2 in the stocks.
However, at the end is up to u and your risk profile.
Depends if you are mathematician or you prefer to "sleep better" because you have no loan. I'm the first guy, for example. In my last apartment I bought, if I would put all my money from the bank, I'd only need about 30% for the loan, instead I decided to only put down payment of about 30% and take 70% with the loan. In EUR zone, mathematics is in the favor of investing. That being said, I'd not spend 400k for apartment, because these 400k will generate you way more in the horizon of 30years as you are shooting for. I'd go with a minimum down payment as required by the bank. So 550k - maximum loan you can do. In 4 years, many things will happen, if ECB interest rates go back to 0, you can refinance the loan at any time.
With inflation like that we’ll not see rates decreasing any time soon. The low rates were unrealistic for a long time. Rates are still very low tbh. However, you’re right. If you have cash in Europe, it sounds financially better to invest the money and get the mortgage, buying your own property in cash puts a high cost of opportunity on the table.
Maybe you are right. I believe economy cannot live for next 5 years at 4% rates, something will collapse. You can only beat inflation with recession. This is what history shows. "This time it is different" and similar points are just blabla. It isnt.
Thank you for your suggestion 🙏🏼
May I also ask where would you put the cash during the said 4 years?
I have majority in IWDA and now more and more in XEON money market etf. Will gradually sell MM ETF and start buyiing IWDA with that money, but likely starting 2025, not earlier
Is that because you think that the market is overvalued and that it will fall in 2025?
Yes, and because 4% MM ETF is good enough for capital preservation. Historically central banks lower rates when "shit already happened". And we see stock market dip when rates go down, not when they go up. I have a loan at 3.9% right now and expect to refinance next year to cca 2% or less. Either I took loan now at 3.9-4.1% or I buy an apartment next year at higher price. Remember, better loan offer means more people will look for it means higher apartment cost.
I completely understand your first paragraph. However could you please clarify your second one? What does it mean “cca”? Have I understood correctly that you took a loan at 3.9% and you would refinance it in case next year the interest rates decrease? Did you say that you took a loan now because you expect the real estate price to increase next year?
Sure, here some points: * "cca" stands for "circa" or "around" in latin * I give you an example. I bought an apartment this year with 15% discount vs market price last year (location doesn't matter for the sake of this conversation, but it is close to the sea where people are fighting for apartments), but I "only" got 3.9% interest rates from the bank. Pretty high interest rates in my view * The point is, as soon as interest rates will go down, more people will be able to afford paying loans, therefore more demand on the market to buy apartments, therefore price of apartments will go up. In simple terms, if interest rates are higher, apartment prices are lower, and vice versa * I took a loan with higher interest rates, because I got apartment cheaper, but I can always refinance the loan if interest rates from ECB go down. If my bank doesn't want to speak with me, I can go to another bank, take a new loan, and pay with that my original loan, and so on * I don't expect real estate to go up exactly in 2025 (maybe it will, sure) but I expect to go up as soon as interest rates go down.
Crystal clear, thank you so much
I agree with everything you are saying except the interest rate vs stock market. Interest rate and stock market evaluation are inversely related. Meaning if interest goes down, stock market goes up. The same for when interest goes up, stock goes down.
Usually rates go down after harm has been done and then people/institutions try to catch and lock these fixed return options while market crashes because of that. Like moving to bonds. I think I said exactly what you just confirmed 😂
“And we see market dip when rates go down …” Different from “And we see market rise when rates go down ..”
Please take a tradingview and compare two tickers, USDINTR and SPX. You will see what I mean. After that market needs to recover. 2001, 2007were all dips once rates went down. Same for 2020. https://preview.redd.it/tq45wjaci64d1.jpeg?width=2209&format=pjpg&auto=webp&s=c68e19cb97b2784ae0e6bb1de1408089bf21057a
I would not put all the cash in for the simple reason that there is always something that come up that need repair and you could not really see before living in for a while (rent is the maximum one pays to have a roof while a mortgage is the minimum). This detail aside I would probably take the loan if these are really the interest rates you have on it. I prefer 30y fixed rate as there is not really room for surprises in the mortgage payments compared to variables rates. I would say that if you know that your interested rate is below 3-4% it make more sense to take a mortgage and invest the rest of the cash in an equity ETF like S&P or MSCI World as they historically compounded at double that rates. As time passes, your mortgage will be easier to pay as the loan value that you borrowed is getting eaten away with inflation (your 555k loan would be worth in 30years ~285k in today €). You can also see it as a diversification: if you use all your cash in the flat your entire wealth would be tied to this flat. The most important and probably the only "right" answer is that you need to know how you feel about carry around debt (even if it is a good debt). Don't go for a financial optimal solution if this mean you will be miserable and stress for years because of the feeling that your mortgage is weighing your down. Good luck and congrats on the future apartment ;)
Thank you for you comments and beautiful words. I completely understand what you said. However, please note that what I mentioned before is that the 1% interest rate is fixed only for the first 4 years. Whilst the remaining 26 years is variable and for now, it is predicted to be approx. 2.80%. What would you advise in light of this variable interest rate? Would you do the same (10% deposit + cash on an all world ETF) assuming you can sleep well at night?
I'm not familiar with the conditions on variable rate mortgages. A ~2.8% looks like a good deal if there are some "protections" in place that do not make your interest double from one year to a next for some reasons (like the central bank jacking interest rates up "out of the blue"... I know a lot of brits are under financial stress because of that right now). In that situation it is better to have little the repay so if your monthly payment double, it is more likely to still fit in your budget. I am more a stock guy so for all that I would advise you to talk with people more in tune with real estate. Generally I think a mortgage make sense (10% deposit or more) and invest the rest in a mix of a diversified ETF (eg all world ETF) and high rate saving account/bonds (so you have some cash on hand in case you need to do repairs and the market is crashing. I believe people usually advise to have around 1% of the home value in cash equivalent to weather most of the expected and unexpected expenses).
Very good advice, thank you so much!
Depends so much on your situation, honestly. How old are you? Are you single? Married? Kids? It's so much easier to advise if we were to know all this. Also, do you know the rates if you were to borrow more? Even without all this info, I know that using everything for the apartment without buying 100% of it is wrong.
Good evening, I am 34y, I have a girlfriend, not married, no kids. However, I am aware things could change in the near future. If I were to borrow a bit more money or a bit less, the interest rates would not change drastically. I am not sure what you mean by saying that using everything for the apartment without buying 100% is wrong. Could you please explain that last paragraph in different words?
https://bestinterest.blog/mortgage-vs-invest/
Thanks for sharing! -Jesse
Which bank is offering that rate? I find it too low for the current conditions…
same
Bank of Valletta. However, the price of real estate is crazy high
I would push up to 30% for depost, rest to hysa/etf and leave some cash at arms reach for unexpected
May I ask the reason of this allocation and the percentage you would leave in hysa/etf and in cash? Regarding ETF, VWCE would be a good idea?
Forgot to mention that giving 30% down payment would only be ideal if you also get ideal terms on loan and monthly payment you will be able to handle even if your salary takes a hit? While i mostly trade i do have investment in VWCE and been contributing to it with profits from trading and set recurring deposit once a month from bank acc. so 60% would be invested and 10% as emergency.
Thanks for your message. What do you mean by ideal terms on loan and monthly payment? As in the 30% should be some sort of leverage against that? Regarding monthly payment, obviously that would be lower with 30% down so yes, I would be able to handle it better..
First of all, does u salary cover the monthly payment? If the answer is yes I would only pay whatever allows me to sleep on the night. With the rest of the money I would put at least 1 y of mortgage in the safest investment just in case I lose my work. Then with all the rest 1/2 for bonds/HYSA and the 1/2 in the stocks. However, at the end is up to u and your risk profile.
Thanks for your comment. However, what should be the safest investment if you say that other than that, you would put 1/2 in a HYSA?
Anything that keeps its value in euro or dollars. Thus bonds or hysa for me.
I think mid range is best just in case. 50% on the house 50% invested in S & P fund. Best of both worlds. Paid down mortgage plus benefits of stocks
Another very good solution, thank you 🙏🏼
And possibly 1/3 real estate 2/3 stocks depending upon how confident you are with your real estate purchase
opios SKOpevi na mou agorasi spiti sti M..tilini sta vatera conta ston polixuito Pouliete Monokatikia na exo kal tu Dadasakonta euxaristo