RetireJapan

Read an article (at the bottom; Japanese) recently saying that with the current rise in mortgage interest rates, it's a big risk for most households with mortgages to invest in NISA; rather they should be using that money to repay the mortgage and do any saving in government bonds. Thoughts? I'm probably taking out a mortgage later this year, would be very grateful for any opinions

Adam

https://president.jp/articles/-/82006

Really don't agree with this, at least for people who have a reasonable margin of safety with their mortgage payments. If any increase in your payments would put your finances in danger, you have an unaffordable mortgage

How high are rates likely to go? From 0.29% (current lowest floating rate mortgage I have seen) to... 1%? 2%? more?

Long-term return from investing is likely to be more that that, and all the reasons from this video still apply: https://youtu.be/EedWDRcqBVI?si=yosdA0E3ejj2jHEb

It really depends on your circumstances - the article author is saying that it’s better for most people to not invest in risky assets, but not all.

I don’t really agree with him when looking at it from a long term view. If your investment horizon is more than 10 years, then the historical record is that you’ll come out with an investment profit at the end.

Sure there might be some event that derails that over the period ahead, but I’d say that’s a pretty low risk, based on the historical records of the sort of portfolio I invest in.

( if you can’t afford to temporarily lose that invested money, thinking it’ll be used for repaying the mortgage, then yes he has a point.)

Personally I was worried about interest rates going higher and my mortgage size was daunting when I took it out, so I went for fixed, and got a low rate at the time - higher than variable, but I’ve got a multi-decade mortgage.

Since then my income has increased (I may be a fortunate one here) and now my home feels a bit small. But for a big decision like a mortgage some degree of caution seems appropriate.

So what’s your plan? Could you afford to see the investment portfolio go down 50% and still be able to keep servicing a variable-rate mortgage?

ap21 wrote: ↑Sat May 25, 2024 11:32 pm Read an article (at the bottom; Japanese) recently saying that with the current rise in mortgage interest rates, it's a big risk for most households with mortgages to invest in NISA; rather they should be using that money to repay the mortgage and do any saving in government bonds. Thoughts? I'm probably taking out a mortgage later this year, would be very grateful for any opinions

Adam

https://president.jp/articles/-/82006

Consider the source. However, someone who cannot accept risk should not be investing.


https://finvest.jp/

松岡 賢治

Financial planner/money writer
Born in 1963. Graduated from the Faculty of Law, Tokyo Metropolitan University in 1989. After working in the research department of a securities company, he went independent in 1996 and obtained a financial planner qualification in 1997. He writes articles on credit cards, asset management, investment, etc. His books include " Robo-advisor Investment Textbook for the First Year " (SB Creative) and " Easy to understand with plenty of illustrations! A book that will definitely benefit you with cashless payment " (Sotec Publishing). AllAbout Guide.

ap21 wrote: ↑Sat May 25, 2024 11:32 pm Read an article (at the bottom; Japanese) recently saying that with the current rise in mortgage interest rates, it's a big risk for most households with mortgages to invest in NISA; rather they should be using that money to repay the mortgage and do any saving in government bonds. Thoughts? I'm probably taking out a mortgage later this year, would be very grateful for any opinions

Adam

https://president.jp/articles/-/82006

If you are worried about interest rates rising the absolute last thing you should be doing is investing in JGBs whose value falls as interest rates rise.

I have a mortgage at a very low interest rate. I have investments which are growing at a much higher rate.
I hope this will continue for another 20 years, but understand that there will be ups and downs along the way. Isn't this normal?

RetireJapan wrote: ↑Sun May 26, 2024 12:17 am Really don't agree with this, at least for people who have a reasonable margin of safety with their mortgage payments. If any increase in your payments would put your finances in danger, you have an unaffordable mortgage

How high are rates likely to go? From 0.29% (current lowest floating rate mortgage I have seen) to... 1%? 2%? more?

Long-term return from investing is likely to be more that that, and all the reasons from this video still apply: https://youtu.be/EedWDRcqBVI?si=yosdA0E3ejj2jHEb

Thanks! Quite agree about ensuring you have an affordable mortgage first; the writer thinks that any rise of variable rate mortage rates to 0.7% or higher makes prioritising repayment crucial, but as you say, I don't quite see the logic of that considering the likely returns on investments - unless you're stretching your finances to bursting and counting on NISA to help you make your repayments in an emergency? That does indeed sound like a bad idea! Other than that, unless you have a solid kosei nenkin coming (I don't), the idea of not putting anything in e.g. iDeCo puts me in far more of a cold sweat than anything the writer mentions. Again, thanks for the opinion and for resharing the video.

sutebayashi wrote: ↑Sun May 26, 2024 12:58 am So what’s your plan? Could you afford to see the investment portfolio go down 50% and still be able to keep servicing a variable-rate mortgage?

Thanks! The plan (as such) is simply to stick to a mortgage that doesn't charge us more per month than we pay on rent now (we're (1) in Tokyo and (2) upsizing so unfortunately the chances of paying much less than now are slim to none). To be honest until I saw this article I hadn't given much thought to what to do with NISA after taking out the mortgage, I suppose I guessed I would see how much we had left over after making pension payments and maxing out iDeCo. If I'm not sure I could afford to keep doing that, then as Ben says, I'm looking at a mortgage I shouldn't be looking at

Tsumitate Wrestler wrote: ↑Sun May 26, 2024 3:10 am

Consider the source. However, someone who cannot accept risk should not be investing.


https://finvest.jp/

松岡 賢治

Financial planner/money writer
Born in 1963. Graduated from the Faculty of Law, Tokyo Metropolitan University in 1989. After working in the research department of a securities company, he went independent in 1996 and obtained a financial planner qualification in 1997. He writes articles on credit cards, asset management, investment, etc. His books include " Robo-advisor Investment Textbook for the First Year " (SB Creative) and " Easy to understand with plenty of illustrations! A book that will definitely benefit you with cashless payment " (Sotec Publishing). AllAbout Guide.

Yep, can't argue with that! All you can do is minimize it.

Deep Blue wrote: ↑Sun May 26, 2024 7:22 am If you are worried about interest rates rising the absolute last thing you should be doing is investing in JGBs whose value falls as interest rates rise.

Thanks! Yes, I've heard similar before. I can't say a 0.57% return is particularly attractive either