Bigger down payment with little investment vs Minimal down payment with larger investments

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asked Jun 15, 2018 10:55 AM by
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updated Jun 15, 2018 10:57 AM by
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Happy friday Dr Jin Choi, question for you when you have the chance.

I'm in a predicament where I can't decide if I should

A) put down 20 percent on a new condo purchase and have 10 percent in ETF/INDEX FUNDS/emergency (I plan on living there long term, 10 years maybe)


B) have 25-30 percent down payment on my home with the rest of the money in investments/emergency.

if I went with A) the mortgage rate would be higher and I would pay more interest long term, but I would have more money for safety or to invest.

If I went with B) I would have less money to play with, but I could slowly rebuild back my TFSA through my bi weekly pay. I was planning to DCA (dollar cost average) invest anyways. I would also have a better mortgage rate ie: (2.21 variable instead of 2.4) and I would be going towards my goal of paying off my condo.

Not sure if there's going to be another 2008 crash in the next few years like some say. In this event, if I went with A) and this event does occur... would my investments go down and would I regret not putting more of my money in my home? Also, what's your thought on the Canadian mortgage rates going up at the moment.

Please let me know when you get a chance. It's my very first home purchase, any tips and advice is much appreciated. If anyone else has something to add, please feel free.

Thank you,


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answered Jun 16, 2018 11:00 PM by
Jin Won Choi gravatar image Administrator

Hi Alain,

Please note that regulation unfortunately prevents me from giving you any specific advice regarding your situation. But in general, I would likely end up recommending B) assuming normal circumstances.

There are a couple of reasons for this. One is that you'll get lower interest rates with a higher down payment. This means the extra down payment will have a bigger effect on your overall payment than merely the interest saved on the payment itself.

To see this more clearly, let's use a hypothetical example where the home price is $400,000. If you put $80,000 down, your interest payment would be $7,680/year. But if you put $120,000 down, your interest payment would be $6,188/year, a saving of $1,492/year. In other words, by "investing" another $40,000, you "earn" $1,492/year, which is 3.7% per year.

Now, the question is whether you can earn more than 3.7% by investing in your TFSA. If so, you should go with option A), but if not, then go with option B). There's currently some debate in the investment community about whether we're in the middle or late stages of the market cycle, but no one thinks we're in the early cycle. Thus, I think the risks that you won't get more than 3.7% per year is somewhat high, whereas you're "guaranteed" to get 3.7% per year with a higher down payment.

So given the risks, I'd personally make a bigger down payment. But like I said in the beginning, please don't consider this financial advice and consult a registered advisor if you'd like to be sure.


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Much appreciated Jin, thanks for taking the time to write up your helpful feedback. :) Alain

anigma ( Jun 17, 2018 12:17 AM )edit

My pleasure!

Jin Choi ( Jun 22, 2018 01:37 PM )edit
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Asked: Jun 15, 2018 10:55 AM

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Last updated: Jun 16

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