House Mortgage and Preferred Shares

Asset allocation, risk, diversification and rebalancing. Pros/cons of hiring a financial advisor. Seeking advice on your portfolio?
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soldToSoon
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House Mortgage and Preferred Shares

Post by soldToSoon »

Please critique this plan.
I'm looking towards buying a new house for about $550k. I can pay cash, but that would be so boring.
Based on my very limited understanding in the investing world, this is what I've thought:

-I put down about 20% and get a mortgage for the rest. No CMHC.
-Mortgage at 2.35% fixed for 5 years.
-With the balance of about 400k, I buy preferred blue chips, say the banks or others, fixed rate resets, that currently yield 4%+.
-I pay off the mortgage from the dividend collected.
-If interest rates fall, I can potentially finance later on at a lower rate. This is a lower probability event or else, we'll be going through pretty bad economic times.
-If interest rates rise, the rate reset preferred will reset at a higher rate and I can finance the balance at a higher rate or pay off the mortgage as required.
-The biggest issue is the credit risk associated with the preferred shares, but if carefully chosen it should be okay over 5 year period.
-I know very little about all this, so seeking out the opinion of all experts out there.

thanks!
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Mordko
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Re: House Mortgage and Preferred Shares

Post by Mordko »

Rate resets could act as an effective insurance against interest rate rises.

If you are planning to do that... Instead of taking a mortgage you could borrow on HELOC and then get the tax credit on investment gains.
gsp_
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Re: House Mortgage and Preferred Shares

Post by gsp_ »

soldToSoon wrote:I'm looking towards buying a new house for about $550k. I can pay cash, but that would be so boring.
In personal finance matters boring is good. If you need excitement, find it somewhere else.
OnlyMyOpinion
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Re: House Mortgage and Preferred Shares

Post by OnlyMyOpinion »

soldToSoon wrote:Please critique this plan.
Without knowing your full financial circumstances, your intentions for the house, etc., a critique that carries any weight can't be provided.
But, since you asked, I would keep this part of your plan:
soldToSoon wrote:I'm looking towards buying a new house for about $550k. I can pay cash
And I would delete this part of your plan:
soldToSoon wrote:Based on my very limited understanding in the investing world, this is what I've thought:
-I put down about 20% and get a mortgage for the rest. No CMHC.
-Mortgage at 2.35% fixed for 5 years.
-With the balance of about 400k, I buy preferred blue chips, say the banks or others, fixed rate resets, that currently yield 4%+.
-I pay off the mortgage from the dividend collected.
-If interest rates fall, I can potentially finance later on at a lower rate. This is a lower probability event or else, we'll be going through pretty bad economic times.
-If interest rates rise, the rate reset preferred will reset at a higher rate and I can finance the balance at a higher rate or pay off the mortgage as required.
-The biggest issue is the credit risk associated with the preferred shares, but if carefully chosen it should be okay over 5 year period.
-I know very little about all this, so seeking out the opinion of all experts out there.
thanks!
Just a Guy
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Re: House Mortgage and Preferred Shares

Post by Just a Guy »

Realistically, you'd be better off paying the property outright, then getting a heloc on the property for investment purposes. Then you could deduct the interest paid on the heloc.

If you have a mortgage on your primary residence, then the interest isn't tax deductible.
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