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View Poll Results: Do it?
Do it, over long term your return will be surely higher than the mortgage rate. 2 11.76%
Don't do it. By principle never invest borrowed money. 15 88.24%
Voters: 17. You may not vote on this poll

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  #1  
Old 30.11.2018, 17:29
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Raise mortgage and invest

Hi

Unfortunately my calculations for buying a land and build didn't quite add up with my liquid means.

However, at least I found out how much extra mortgage I could take up on my current place (a six digit number). This got me thinking about taking out the extra mortgage and invest it.

What is the EF wisdom around this topic?
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  #2  
Old 30.11.2018, 21:40
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Re: Riase mortgage and invest

Wasn’t the whole Sub-prime mortgage in large part due to people borrowing money on their properties beyond their means of repayment?
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Old 30.11.2018, 21:46
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Re: Riase mortgage and invest

Does the tax deductibility of your mortgage figure in your financing viability decision?

If so, take a look at post 3 in this thread:
https://www.englishforum.ch/housing-...den-costs.html

Waiing to change mortgage strategies until the details are known might be prudent.
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Old 30.11.2018, 21:57
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Re: Riase mortgage and invest

You'll probably won't hear any of us, but don't. Just don't.
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Old 30.11.2018, 23:54
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Re: Riase mortgage and invest

Never invest (or gamble) what you can't afford to lose...
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Old 03.12.2018, 09:43
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Re: Riase mortgage and invest

It's a no from me aswell.

By 'invest' what do you mean exactly? Shares? Other properties?
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Old 03.12.2018, 10:15
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Re: Riase mortgage and invest

Thanks for all the opinions. I will surely give this another thought. The truth is that this 6 digit figure could bring me 4-5 years closer to financial independence.

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Wasn’t the whole Sub-prime mortgage in large part due to people borrowing money on their properties beyond their means of repayment?
Well, my thinking was, that if I increase my mortgage now back to 80%, I am in the situation as if I was buying my apartment right now (instead of 6 years ago) AND having 15% of the property value as an additional investment portfolio.

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You'll probably won't hear any of us, but don't. Just don't.
Why wouldn't I, there is a reason I asked here.

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Never invest (or gamble) what you can't afford to lose...
Well, actually worst case scenario I could afford to loose it. Should the property prices drop and the bank make a margin call, I could easily reduce my mortgage back to 65% using my 2nd pillar (untouched till now) alone without having to touch my investments at unfavourable stock market conditions.

The way I see it, this is realising the profits of my property investment without actually selling it.

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It's a no from me aswell.

By 'invest' what do you mean exactly? Shares? Other properties?
I am thinking about BRK + Fundsmith + Smithson
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Old 03.12.2018, 10:34
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Re: Riase mortgage and invest

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I am thinking about BRK + Fundsmith + Smithson
Mind the currency risk.
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Old 03.12.2018, 10:41
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Re: Raise mortgage and invest

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I am thinking about BRK + Fundsmith + Smithson
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Mind the currency risk.
What currency risk? If the USD or GBP tumbles the shares are still worth what they were before, just a few more in dollars or pounds.
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Old 03.12.2018, 10:53
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Re: Raise mortgage and invest

I have done this, but it will all depend on your specific financial circumstances so difficult for anyone on here to advise one way or the other.

In general I would suggest that if you:
1) can afford to repay the mortgage even if you take a -40% bath on the investments you make (ie a repeat of 2008 crisis);
2) have a long-term time horizon until you are looking to retire and therefore have time to wait out any drawdowns in the investments; and
3) are not taking too much leverage on your overall portfolio

then it is probably worthwhile.

I would make the most of the low long-term fixed mortgage interest rates available at the moment and fix for 10 years. As you get closer to the end of the fix you should then re-evaluate the investments you have made vs where interest rates are at that point to decide whether to take the risk of continuing to hold higher-risk investments (and keeping the mortgage) or whether to start cashing in ready to repay the mortgage.
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Old 03.12.2018, 11:10
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Re: Raise mortgage and invest

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1) can afford to repay the mortgage even if you take a -40% bath on the investments you make (ie a repeat of 2008 crisis);
Worst case scenario: 2nd pillar if margin call.
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2) have a long-term time horizon until you are looking to retire and therefore have time to wait out any drawdowns in the investments; and
15+ years.
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3) are not taking too much leverage on your overall portfolio
I use 0 leverage in my investment portfolio. Unless you consider the property investment itself, which would be 5x.
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Old 03.12.2018, 11:10
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Re: Raise mortgage and invest

i always do the following thought experiments. assuming i have a 10 year fixed rate mortgage (say 1%), would i be willing to extend that mortgage if:

- the money was invested into a 10 year US treasury bond yielding 3% (i.e. have mainly FX risk)?
- how would i react if instead of the treasury bond, i invested it in 'Crappy Fund' which subsequently loses 50% of value in first 2 years and doesn't have a bright outlook?
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Old 03.12.2018, 12:40
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Re: Raise mortgage and invest

Biggest issue is the cash call on the mortgage will happen at a time when equities are down 50%. I don't gear anything, then very little can go wrong as you won't be a forced seller. Swiss property could easily fall 50%, just knocking off the ZIRP premium from the last 10 years. I remember when post finance paid 2.5% interest & it's not so long ago.
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Old 03.12.2018, 12:44
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Re: Raise mortgage and invest

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Biggest issue is the cash call on the mortgage will happen at a time when equities are down 50%.
see above: In that case I would use our 2nd pillar instead of selling at a loss.
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Old 03.12.2018, 12:57
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Re: Raise mortgage and invest

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see above: In that case I would use our 2nd pillar instead of selling at a loss.
Yes but the second pillar would significantly drop in value in the scenario I am talking about. If there was no cash call I would say yes, but due to potential cash call then no.

Out of interest how did your other investments perform v Fundsmith?
My wife's financial advisor said 100% FS was too risky for her pension fund so went 25% FS which is up 23.4% in i8 months he chose LF Woodford for 25%, thats down 15.2% & other crap. His picks are down on average based on cash weightings. FS is also the best performer..... . About to be transferred to Hargreaves Lansdown....
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Old 03.12.2018, 13:18
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Re: Raise mortgage and invest

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see above: In that case I would use our 2nd pillar instead of selling at a loss.
And when everybody and their dog has been asked for cash to maintain the LTV around the same time?
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Old 03.12.2018, 13:46
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Re: Raise mortgage and invest

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see above: In that case I would use our 2nd pillar instead of selling at a loss.
what is your 2nd pillar invested in?
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Old 03.12.2018, 14:16
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Re: Raise mortgage and invest

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What currency risk? If the USD or GBP tumbles the shares are still worth what they were before, just a few more in dollars or pounds.
Worth the same in USD but not in CHF, the currency your mortgage is denominated in.
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Old 03.12.2018, 14:41
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Re: Raise mortgage and invest

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Yes but the second pillar would significantly drop in value in the scenario I am talking about. If there was no cash call I would say yes, but due to potential cash call then no.
Indeed. But swiss PFs are quite defensive, which means the hit would not be as bad as e.g. on the property market.

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Out of interest how did your other investments perform v Fundsmith?
So far I have about the same avg yearly return with BRK as with FS. FEET is down like all emerging markets. Other than that I have shares of my employer, which didn't grow much, but I get a significant discount on purchase and a ~3% dividend which combined still make it a good investment for the 4 year holding period.

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what is your 2nd pillar invested in?
Caught me there: as all PFs, mostly swiss stock, bonds and swiss real estate

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Worth the same in USD but not in CHF, the currency your mortgage is denominated in.
But I have my 2nd pillar in CHF as a hedge. For the rest of my investments I don't care much, as who knows where I will retire.
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Old 03.12.2018, 15:56
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Re: Raise mortgage and invest

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But I have my 2nd pillar in CHF as a hedge. For the rest of my investments I don't care much, as who knows where I will retire.
Yes & no, if the economy takes a hit those Swiss assets could significantly fall in value.
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