Author Topic: Taking up a mortgage on debt free house to invest?  (Read 372 times)

Linda_Norway

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Taking up a mortgage on debt free house to invest?
« on: March 20, 2017, 03:49:43 AM »
Hello,

My situation is that we have put most of our money in our current house which is free of debt. In addition we have some money in index funds, worth about 15% of the value of the house.

In Norway we pay 0,85% tax on assets. Savings on the bank and in stock are 100% taxable. A primary house is only taxable up to 30% of it's value. Our house even less, about 25%.

Mortgage on a house costs 2,15% rent. Some of that (to a certain max) can be withdrawn from taxable income in a lower tax scale.

When cashing in the profit on stock funds, we need to pay income tax over the profit. As we are in the highest income scale, this is almost 50% tax.

I would typically choose one of these funds (lower on the page):
https://www.klp.no/person/fond/indeksfond
And then only use the same currency as our loan is in, so that we don't take any value risk as well.

Of course having a high mortgage on the house means paying a lot of rent each month, which will reduce our month to month cash savings. The index fund should better give a good revenue to make up for that.

Would it be beneficial for us to take up a mortgage on a part of the house and put it into a cheap index fund?

My idea is that it would only pay off after a good stock marked dip. Do these dips tend to last long enough, like a week and a half, to organize the paperwork to retrieve a loan during a dip? Or should we already get the loan, and wait, or invest at a random time?




nawhite

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Re: Taking up a mortgage on debt free house to invest?
« Reply #1 on: March 20, 2017, 10:17:04 AM »
Wow things are really different in Norway than the US. Those are some very progressive policies.

What is the Long Term Inflation-adjusted CAGR of the index fund you plan to use? Would you just be doing a Total Stock Market fund? A US 500 fund (CAGR = ~6.8%), a Norway based fund?

"Mortgage on a house costs 2,15% rent." is that the interest rate or the fees? Are interest rates in Norway fixed or variable and over what term?

"My idea is that it would only pay off after a good stock marked dip. Do these dips tend to last long enough, like a week and a half, to organize the paperwork to retrieve a loan during a dip? Or should we already get the loan, and wait, or invest at a random time?" - This is market timing. You, by definition, can't predict if a dip will turn around or continue to go down. While it's nice to get lucky and buy when slightly lower, it's just as likely to be holding a bag of money waiting for it to go down while missing out on all the gains on the way up. Look into Dollar Cost Averaging or Dollar Value Investing if you're feeling really math-y.
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Linda_Norway

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Re: Taking up a mortgage on debt free house to invest?
« Reply #2 on: March 20, 2017, 11:57:43 AM »
I discussed it with my DH. He says we only pay 28% tax over stock profit.

The mortgage floating rent at this moment is 2,15%, including fees. This is if you don't take more than 70% mortgage on the house.

My husband thinks the index fund sould make more than 5% profit for us to gain on it. As index funds tend to make only 7% on average over time, this is not a big margin. And we will sleep less comfortably.

I don't know the CAGR of the funds. Maybe at a dip we should invest.

I just thought that the oil branch has such a dip at this moment, oil buying with about 30% of what it used to be some time ago. But to invest into oil now, while the world is building more and more windmills and solar panels is like investing in the stone age.