Hello Everybody,
Here's a question I have, and I'm hoping to seek some advice, thanks in advance.
My father is a foreign alien. He's done working, he's happy where he is, and he bought a retirement house. The country he bought the house from has very little economic activity, and the mortgage rate is around 2%-3%. His whole life saving can pay off the debt all at once, and live debt-free forever, or he could get a mortgage.
So, here's the question - based on the SP500 having around 7% return on average, "technically" there is a 4-5% difference to be made by taking the mortgage and throwing it in the index. This is a "supposed" arbitrage opportunity. However, the limitations of the scenario is:
1. He can probably apply MAX 10-15 years mortgage (he is not working that much longer, and the bank knows that) -> if he could apply a 30-year one, I'd say go for it.
2. Every month, payments will be interest+principle, so the amount being withdrawn will be more than 2%-3%.
Because of these limitations, this is not really a "long-term" buy and hold scenario. The debt has to be paid off 10-15 years, and especially in the beginning years, we can't really afford a "correction."
Should he just pay it off? Or let the money work?
Thanks all for your input!