90% Mortgage + 10% Deposit VS 100% Mortgage + Investment Fund?

ixoy

Was speaking to a broker today about mortgages and said that I would go with the 90% mortgage + 10% deposit model if I was investing in a property. The 10% deposit would constitute the majority of my savings.

He cautioned against this. His advise was to get a 100% mortgage. The money that would have been the deposit he then said should be placed in an investment account that would, he claimed, yield a return of 10-11% per annum. This would be greater than the interest on that amount had I borrowed it, thus yielding a positive return. I could then dip into this fund, periodically, and use it against the mortgage.

By the thinking above, I'm assuming that if there was a deposit amount of 10,000 then, in a mortgage at 5% it would be 10,500 owed at the end of the first year (I know it's slightly different to this but for the example). Meantime that extra deposit amount would have gained, say at 8%, 10,800 in the account so I'd be €300 up.

Has anyone else employed this type of model? It seems a little riskier in terms of using an investment account, but potentially more rewarding. Anyone had any experience?

Sponge Bob

and he disclosed his commissions which would mean that he will make more money selling you 2 products not one.

stay away from ínvestment fund snakeoil until you understand it and understand that the fund may make a nominal 10% in a good year but that the management fees are 8% so YOU make 2% in many cases .

Yes its potentially more rewarding ( and deffo for the broker its more rewarding) but I would advise against it. What is the fund called for starters and/or who runs it ???? Did they disclose fees and commissions at all, why not ???

Had the broker been really honest he woulda told you that you get higher tax relief on a pension fund (not an investment fund) so government gives you 40% back ...the higher tax rate...on pension savings .

Save yourself for that mate and find out who operates these things in Ireland , etc and what their fees and rates of return are or have been (mainly crap over 10 years compared to asset inflation which shows how much fees are sucked out ). Investment funds are usually worse than pension funds.

A Random Walk

ixoy wrote:

he claimed, yield a return of 10-11% per annum.

You hear the same thing from a lot of people "what if I didn't pay off my mortgage and put it into shares!?".

Ask yourself one question - if it was such a sure thing, why are banks so stupid as to lend people money at 4.5% if they could make 10% on it? The answer is simple, it isn't a sure thing.

You could very well make 10%. You could lose 25%. Who is the person guaranteed to make money here no matter what happens? The bank.

ixoy

The investmen plan that he was pushing was Irish Life's Signature Saver. The group have "negotiated" a 2% entry charge on payments (rather than the typical 5% so I'm told), and waiver the standard plan charge per month. It says there are no exit charges and that the fund charge is 1.25% p.A. with no other charges on this little leaflet beside me.

This represents a 60% saving on monthly entry fees (so it says).

Within their Signature Saver there's a multiplicty of fund types, all designed to be somewhat confusing to the average layman (i.e. me) by couching it in a good swathe of terminology.

The numbers there are vague, but does it shed any more light to those of you who know better? I'm obviously also aware that if my monthly repayments are higher and I'm paying into an investment fund that I'd have less cash than otherwise.

A Random Walk wrote:

Ask yourself one question - if it was such a sure thing, why are banks so stupid as to lend people money at 4.5% if they could make 10% on it? The answer is simple, it isn't a sure thing.

A very good point and I'm always someone who has been fiscally cautious.

Borzoi

ixoy wrote:

Was speaking to a broker today about mortgages and said that I would go with the 90% mortgage + 10% deposit model if I was investing in a property. The 10% deposit would constitute the majority of my savings.

He cautioned against this. His advise was to get a 100% mortgage. The money that would have been the deposit he then said should be placed in an investment account that would, he claimed, yield a return of 10-11% per annum. This would be greater than the interest on that amount had I borrowed it, thus yielding a positive return. I could then dip into this fund, periodically, and use it against the mortgage.
?

TBH If a broker suggested that to me, I'd call him a crook and a conman, and leave his office never to darken his door again. He's only trying to make as much commission as possible out of you, go elsewhere.

Sponge Bob

I have often come across missold Irish Life product especially in the UK where Irish Life were atrocious at misselling and charging penalty interest when you exited their underperforming crap.

My advice is that in the absence of full disclosure upfront of everything affecting your money ( and it will go down for 3 -5 years thanks to commissions ) then do not TOUCH IRISH LIFE becuase you will guaranteed see them lose some of your lump sum.

ask them one question. "What will it be worth in 2 years becuase I want to cash in then"

They will murmur about this being a long term product (it will start to perform better when there is no commission being paid any more is what that means, usually after 5 years .

They will not give you a straight answer. Thats 100% Guaranteed by Irish Life .

Nor will they disclose the effect of commissions on the lump sum at the end of year two which is what you asked in that question I formulated.

SkepticOne

ixoy wrote:

By the thinking above, I'm assuming that if there was a deposit amount of 10,000 then, in a mortgage at 5% it would be 10,500 owed at the end of the first year (I know it's slightly different to this but for the example). Meantime that extra deposit amount would have gained, say at 8%, 10,800 in the account so I'd be €300 up.

Would you not then be better off with just the investment account. Even optimistic forcasts for house price growth by vested interests are talking about gains of about 3-5% for the coming year. But previous estimates have been out by more than this. You only need a slight drop and your entire savings have been wiped out. A slightly larger drop and you are in serious debt without sufficient assets.

TCollins

Dont forget you will have to pay tax on any profit you make from your savings.

He's having you on. Kick him out.

antoinolachtnai

You should ask him to put his advice in writing.

Antoin.