I am considering locking up some cash in investments, even a 1 year CD, in order to get even a small ROI with thought that I might buy a house next summer (June onwards). Or perhaps earlier, if something presents itself. (I am, so far, a total non-investor in any active way other than some 401ks that I take no active involvement with).
I had wanted to possibly try to buy a house [EDIT: for personal reasons, not as an investment] in cash, in order to save the mortgage interest (and simplify the deal). But if my money is locked in a 1 year CD or some investment that it is not so liquid, I would not be able to do that next summer (without penalty).
But I really don't want to waste a year of the money rotting as no-interest cash.
So now I thought about buying the house with a mortgage to start, then, when the money was again accessible, paying off the mortgage in full at that point, rather shortly after the mortgage was opened.
What I'd like to ask are the following related questions:
Does this plan make sense mathematically? It seems to me that it does not if the ROI from the investment, like a CD, is below the mortgage interest. Right now 1 year CDs pay about 1%, and mortgage rates for a 30 year mortgage are about 4%, so on that alone it seems like a loser. But if I invested in stocks, perhaps 1 year could show 4% or better returns--but it is money at risk. But on the third hand, I also don't want to just let the money sit with no interest for a year, particular given I might not buy any home next year, depending on life circumstances.
Does it make sense in terms of the common rules about paying a mortgage off early? Are there bank penalties for doing this? I mean, imagine the home buyer takes a 30 year loan, but then five months into the loan he pays it all of with one big check. Is that permissible? Is there any tax, fines, penalties, or other reason to not do this?
Is there a better strategy that I am overlooking?
Thanks for any light you can shine here, PF&M team.