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I moved out of my parents's house a couple weeks ago. I moved into an apartment in a big city and I am not sure yet if I will like it here or not. I have no idea when I'll switch to a house and if it will be around the same place.

For now, my apartment has a one year contract so I'm here for at least a year.

I've been looking to start investments, saving up for a house. I started a retirement fund.

(I don't know if that's the right word, but what I refer to as "guaranteed investment" is my crude translation of a french word for an account that gives you a higher interest rate in exchange for locking your funds away for a certain time. The longer you lock it, the higher the interest rate when the time is up)

I'm very interested in this kind of account because getting 2.5-3.5% interest is much better than the usual 1.25% I get for normal accounts. I'm not sure how liberal I should be with locking away funds if I don't know when I'll need to take out as much money as possible for a down payment on a house.

So the question is: How comfortable should I be with investing money like this? If I decide to buy the house 1 year before the term is up, how much money will I lose in interest by having a smaller down payment because of that? Would it still be worth it?

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    I think that you answered your question when you wrote "I'm not sure how liberal I should be with locking away funds if I don't know when I'll need to take out as much money as possible for a down payment on a house." If you think that you may need the money then it's not a good idea to lock up the money if penalties will be incurred to access your money before the full term is reached. – Bob Baerker Aug 31 '18 at 13:30
  • @BobBaerker I know that the best situation is buying a house at a moment when all my funds are available. The question is, is it more profitable for me to take advantage of those interest rates, even if that ends up reducing my down payment if I end up buying before the term is up, or is it more profitable to make 100% sure i get the maximum down payment, even if that means not taking advantage of higher interest rates until then (and it might be several years from now) – Kaito Kid Aug 31 '18 at 14:00
  • I would urge you to go absolutely-all-out to secure a piece of real estate. The tiny number 1%, 3% are completely dwarfed by the advantages of securing your first flat or house. I would live as if your hair is on fire, until you secure that first mortgage. It's just not worth "fussing" about the distraction of 1% here or there - keep it liquid as if you are utterly focussed on the flat! GOOD LUCK!! – Fattie Aug 31 '18 at 14:26
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    Are you in France? Investment vehicles vary by country. For example, in the US we have CD's which are as you describe, but typically the funds are not truly locked away, they can be withdrawn early for a penalty (several months of interest), making them quite flexible. – Hart CO Aug 31 '18 at 14:30
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    @HartCO Canada, if that makes a difference – Kaito Kid Aug 31 '18 at 14:31
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one man's opinion,

Securing that first mortgage is also a mental-psychological battle.

The fact is the tiny 1% here or there differences under discussion will be dwarfed on all fronts by the economics of the (wonderful) moment of securing that first mortgage.

I suggest keep your financial life totally focussed on that coming moment when you secure your first flat or house...

Forget the issue of the tiney 1-2% differences and stay liquid, with a total focus for you mentally on securing that first mortgage.

Bon chance!

Most importantly, if your aim is to kick around the world and live/work in sundry places, this is the best thing you can do.

OP is in City/Country X presntly. He buys the flat. He decides to go gallavanting around the world and goes off to live in Osaka or Sydney or LA for a year or five. He simply rents out out flat in city X, maintaining ownership of it.

Sure, there may be some tiny random expenses now and again in doing this. But so what: "kicking around the world" involves constant tiny expenses. (Moving things, re-buying cutlery constantly, oddball medical expenses, sudden flights needed, and so on. Once in a blue moon if you have a maintenance cost or the like - believe me, it is no different from the other endless costs you will have in "living globally".)

With your "handy anchor" back in X, you will be constantly building your overall ultimate wealth, even as you piss about on the world stage. And it is spectacularly advantageous entrée to be able to say "sure I'm a home owner" when you are mucking about globally.

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  • I could go and buy a house right now with the money I have saved and my current income. I have tried it just for fun, and most banks pre-approve me for a large enough amount to buy a decent house right now. The thing is, I don't want a house right now, since I'm still unsure if I want to live my life in my current city. – Kaito Kid Aug 31 '18 at 14:32
  • Howdy @KaitoKid - I like your style. I will offer you a critical gem, you have MORE, not less, freedom once you secure that first piece of real estate. it is much, much easier to bounce around the world working, once you have secured that first flat or house. Good luck to you! – Fattie Aug 31 '18 at 14:39
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    @Fattie I love your enthusiasm for property ownership, but if there's a high probability that you'd move in the next 2 years, then buying is likely not worthwhile. You risk losing money/being stuck with a house you can't sell for what you paid if the housing market dips. To break even the property would have to appreciate enough to cover realtor fees, in many markets that wouldn't happen in 2-years. – Hart CO Aug 31 '18 at 14:54
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    @Fattie Not all markets are good rental markets, and you have to be in a position to cover vacancies and any major repairs. Not to mention limitations imposed by mortgages that don't allow renting within first 'x' years. It might work out great, but a much better bet is buying somewhere that you are content to be for a few years at least. It's not a sure thing, is my point, and it becomes less of a sure thing the shorter the time line. – Hart CO Aug 31 '18 at 17:04
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    @Fattie I think your views are colored too much by where you live. For example, in the Netherlands, it's still common to get mortgages without a down payment and banks typically do not allow you to rent a house out with a LTV over 50% or so due to the high degree of tenant rights. If you were to buy there and move to somewhere like the US where a down payment of 20% is strongly advised or required, then keeping the property and buying again soon is just not possible. – Eric Sep 30 '18 at 23:49
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The benefits and drawbacks of locking up savings seem marginal, compared to the direct impact of the decision whether and when to buy a house. I would come down slightly on the side of maintaining liquidity.

First, the comparison of current shorter-term versus longer-term deposit rates is not exactly what it seems. If you keep your savings liquid, the 1.25% rate will not remain the same forever. Arguably it is more likely to go up than down. The long-term deposits would not be paying what they are, if rates were expected to decline. So some of the difference will probably be recouped.

Second, the option to make a larger down payment could help you avoid the cost of private mortgage insurance (PMI) or equivalent. (If you have good credit, the amount of your down payment above say 5% probably won't have a strong effect on your interest rate, though.)

With liquidity you also would have the option, of course, to make a smaller down payment if that is best at the time (e.g., to retain savings for other expenses or for retirement).

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