# Mortgage and investments: where, how much



## infinitecardinal (Sep 19, 2014)

Hi. I'm looking to get my first mortgage to buy a house in Ottawa. I would like to ask your opinion on two things:

1) I have mutual funds with Investors Group, and my adviser there recommends that I keep them and get as big a mortgage as possible. His logic is that if the investments make an average of 8% per year and the mortgage costs 3% per year, then it makes sense to borrow, even if it means making a 5% down payment and putting insurance on the mortgage. I see his point, but my instinct is to pay as much as possible down on the house and keep the debt down. I expect to be stably employed at a comfortable level and not moving anywhere else for the foreseeable future. Opinions?

2) My friends who have bought have used mortgage brokers to find their mortgages, and have been satisfied. My adviser at IG just assumes I'll get my mortgage from them. Is there any advantage to getting it with them if they have my investments? Or should I just shop around and find the best rate?

Thanks.


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## chantl01 (Mar 17, 2011)

infinitecardinal said:


> Hi. I'm looking to get my first mortgage to buy a house in Ottawa. I would like to ask your opinion on two things:
> 
> 1) I have mutual funds with Investors Group, and my adviser there recommends that I keep them and get as big a mortgage as possible. His logic is that if the investments make an average of 8% per year and the mortgage costs 3% per year, then it makes sense to borrow, even if it means making a 5% down payment and putting insurance on the mortgage. I see his point, but my instinct is to pay as much as possible down on the house and keep the debt down. I expect to be stably employed at a comfortable level and not moving anywhere else for the foreseeable future. Opinions?
> 
> ...


For (1) have you considered what happens if the markets decline and your investments don't gain 8% per year but instead lose perhaps 18-30% in a year or two as happened in the 2008/2009 market decline? All of a sudden you could end up owing more on your mortgage than what you have in your investment holdings, and you will still be responsible to pay back that money and service the debt. Don't forget - your investor is financially motivated to have you take on more debt so you can have more invested with him (with him and his company earning about 3% of your holdings from you each year, good or bad). The adviser doesn't have to pay the debt down - you do. If you don't understand what I mean about them earning 3% from you, read up on MERs and what those rates are on your IG mutual funds.

For (2) definitely consult a mortgage broker. If your adviser at IG can do better on your mortgage offering, then it may be worth considering on a competitive basis. But IG won't give you a better mortgage just because you have your investments there. They will purely be looking at it from a financial risk and return basis. You should do the same.


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## Just a Guy (Mar 27, 2012)

For your first question, it all depends on your comfort level. The cheapest cash you could probably ever borrow (aside from money you get from your parents) will come from a mortgage.

Just because you CAN do something, doesn't mean you SHOULD do it. 

If you are trusting other people to manage your money, I'd say you probably aren't really involved in your investments...usually not a good thing, so I wouldn't borrow extra funds, but then again, I probably wouldn't cash out your present investments either as you not only lose their earning potential, but also have to pay taxes on the gains.

As for your second question, getting a mortgage broker gives you more leverage when negotiating, so it can't hurt you, and you'll only benefit, even if you go to IG. Be careful though that you are comparing the same type of mortgages...the lowest rates sometimes come with a lot of restrictions in the fine print...


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## My Own Advisor (Sep 24, 2012)

Also live in Ottawa, welcome to the 'hood!

1) I would NOT listen to the IG advisor advice. It always makes sense (to me) to have as little debt as possible. Put as big of a downpayment on the house as you can, and kill the debt sooner than later thereafter. Borrowing more money will make IG rich or a bank rick, not you.

2) I would definitely use a mortgage broker. It doesn't cost you anything. They get paid by the lender. 

Your advisor at IG has some wishful thinking. Shop around, absolutely. 

You wouldn't overpay for a pizza this weekend would you? Why do this for a purchase of $300,000 or $400k or more?

Good luck!


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## Pluto (Sep 12, 2013)

infinitecardinal said:


> Hi. I'm looking to get my first mortgage to buy a house in Ottawa. I would like to ask your opinion on two things:
> 
> 1) I have mutual funds with Investors Group, and my adviser there recommends that I keep them and get as big a mortgage as possible. His logic is that if the investments make an average of 8% per year and the mortgage costs 3% per year, then it makes sense to borrow, even if it means making a 5% down payment and putting insurance on the mortgage. I see his point, but my instinct is to pay as much as possible down on the house and keep the debt down. I expect to be stably employed at a comfortable level and not moving anywhere else for the foreseeable future. Opinions?
> 
> ...


One thing your advisor seems to have missed is by getting a bigger mortgage in order to keep investments, the extra interest payments isn't tax deductible. 
If you got a bigger mortgage and then bought income producing ( eg dividend paying) investments with some of the money, a portion of the interest would be a tax deduction. doing it his way, you miss out. 
So you might consider asking him if any of your investments would qualify ie do they pay dividends or other income - for a tax deduction if purchased with borrowed money. If so, and you get your mortgage with them, and you decide to keep your investments, ask him what has to happen to ensure you get the interest expense deduction. 

On the other hand, you seem to lean toward having less debt. It's what you are comfortable with. I'm not sure those advisors are really advisors - I suspect they are sales people who get an on going commission from retained customers. If so, your advisor's main goal will likely be his/her best interest. 

Supposing you go for the bigger mortgage and keep the investments - I would only do that if they arrange it so you get the interest expense deduction. And if you go that route, and you have trouble making payments later for what ever reason, you can always sell the investments.


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## larry81 (Nov 22, 2010)

infinitecardinal said:


> 1) I have mutual funds with Investors Group, and my adviser there recommends that I keep them and get as big a mortgage as possible.


This is the typical IG scam. Your "advisor" is putting his own interests before yours.


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## couchman (Oct 10, 2013)

Agree with My Own Advisor above... Also live in Ottawa. Pay down as much as possable on your mortgage. Also I deal always with a mortgage broker and would never have it any other way. In my opinion I dealt with investors group years ago and I would run the other way as quick as i could. Was not impressed at all with them. Basically there a salesman..If you need a reference in ottawa for a broker let me know and I can recomend one I have used 4 or 5 times and hes great.


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## marina628 (Dec 14, 2010)

Yes IG wants you to keep these high fee investments with them ,put 5% down on a mortgage with them and then get mortgage insurance from them.First thing you should do is get rid of IG and you pay CHMC on the mortgage if you only put 5% down which is a waste of a few thousand and you won't be paying 3% on that mortgage for the lifetime of the mortgage. so not really a good idea.


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## liquidfinance (Jan 28, 2011)

How are IG in business? How can you advise someone to borrow so much they pay mortgage insurance and do it in such a way that you would not qualify for interest expense deductions?

Seem to me like an awful idea. I would also take a good look at what funds you hold through IG along with the MER. You could probably save yourself a couple of % in fees.


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## Mortgage u/w (Feb 6, 2014)

Definately do not borrow more than you should. Paying CMHC fees on your mortgage is a huge waste especially if you have enough money saved up for the traditional 20%. Your funds can be there one day generating 8% and the next generate negative 8%. They can also disappear. Your mortgage rate will never be negative...and never disappear without paying it off.

You IG adviser is thinking of his own interests rather than whats best for you. He must have followed his own advice and needs to pay down a huge mortgage with the commission he'll generate from you.

Here's the best free advice you'll get: CHANGE ADVISOR!


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