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I live in a country where currently mortgage interest rates are historically low (around 3-4% for 300K 30 years mortgage, and the interest is also tax deductible), and the banks are willing to finance a 100% of the house via a mortgage. I am married, 35 years old, and expect to have relatively stable employment for the next 15 years. Let's say I have around 100K euro as savings.

My two options as I see them;

  1. Putting the 100k I have as downpayment, thus lowering the mortgage from 300K to 200K, gaining a better interest and repaying the mortgage in a lower amount of time (say 20 years instead of 30)

  2. Not putting any down payment at all, investing the 100K (in a cheap S&P 500 ETF).

I'm not expecting a definite answer, more of a pros and cons of each approach.

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  • Is the 100K all your savings? Or is it the maximum amount you can put down and still have money for an emergency fund, life happens fund, education fund, retirement fund...?
    – mhoran_psprep
    Jul 25, 2019 at 10:16
  • for the sake of this exaple let's assume its all my savings
    – Joel Blum
    Jul 25, 2019 at 11:15
  • That leads to the question: how much is left after accounting for an emergency fund, education, and retirement?
    – mhoran_psprep
    Jul 25, 2019 at 12:08
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    Do you have an equivalent to PMI (private mortgage insurance) in your country? In the US, it's an extra fee you pay the lender if you downpayment is less than 80% of the purchase price, to cover the possibility that you default on the mortgage.
    – jamesqf
    Jul 25, 2019 at 16:31
  • consider more diversification. all in one place (even s&p 500) is risky
    – njzk2
    Jul 26, 2019 at 2:19

2 Answers 2

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My suggestion is to use half of your savings ($50k) for your down payment and leave the rest for your emergency fund, without any investment. This assuming your comment about the $100k actually being your savings is true.

First off, never assume you are going to be constantly employed for any length of time. Not 15 years, not 15 months. You likely don't know your employer that well, you don't know what the economy will do, you don't know if someone is going to or is already embezzling from your company, you could become disabled in a car wreck, there's just too many reasons why your job could be at stake to blindly assume that you're going to be steadily employed.

Anything you put down on a house is more money you save. Only buy a house 100% financed if you absolutely have to. It's great it's an option, but it sounds like you don't need to use that option. Also, interest rates may be at 3-4% right now, but that's entirely dependent on your credit history. In the USA at least, the only people who get the advertised rates are those with perfect or nearly perfect credit ratings. Everyone else gets a higher interest. If you are one of those people with perfect credit, great, but you still want to save money on interest payments for the life of your loan.

https://www.nerdwallet.com/mortgages/mortgage-calculator/calculate-mortgage-payment

Using the mortgage calculator above, at $300k, 3% interest rate, putting $50k down saves you around $44k in interest payments. Putting all $100k down saves you around $110k in interest, but you are left open to financial problems by not having an emergency fund until you can replenish it. I don't recommend living without an emergency fund. There's too many things that can cause you misery without one.

FYI, I'm not affiliated with NerdWallet, they just had the options in the calculator I wanted to use, such as HOA, insurance, and property taxes.

As far as investing in stocks, I consider this the same as gambling: Only spend what you can afford to lose. Since you don't say how much you earn, which you don't have to, I'm going to assume you aren't super rich, so you need the money you have. Yes, people get rich off stocks, but usually only after a lot of mistakes and also by putting a lot of time and money into the stock market.

If you really feel the need, put maybe $2000 into a trading account and see how you do. If you do well, keep rolling that money into more trades. If you do really well, you might consider adding another $10k into the account and maintain your method of good trades. Too many people go on "autopilot" after winning some good trades and think that they are all of a sudden able to win at anything, while putting a lot more down, only to lose it all. Just, be careful.

There's 1 million other versions of "how best to proceed", and even 1000 variations on my suggestion. It's really up to what you are comfortable with. There's a lot of risk with the stock market, much less with your mortgage, and not much risk with your savings. What you're really asking is "where do I put my money that the risk pays off", and only you can decide what risk you are actually comfortable with.

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  • note: the OP is not considering playing stock-picking-roulette, but investing in ETFs (although maybe some diversification would help, there)
    – njzk2
    Jul 26, 2019 at 2:18
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Depending on questions asked in the comments (regarding PMI) I think your best course of action is:

Don't put any money down.

Don't invest all of your savings.

Keep an emergency fund of 6 months of mortgage payments (more depending on the levels of social safety nets, most importantly how well/badly you'd do on unemployment).

Invest the rest into a safe-ish investment. S&P 500 is a very good choice for that.

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