MTI008: Financial Planners and Mortgages for Millennials with Kate Holmes

This episode covers a wide range of important financial topics. Kate Holmes, the founder of Belmore Financial, comes on to the podcast to share her thoughts about the typical financial adviser and broker. She brings her over 9 years of experience as a certified financial planner to give us a different take, and the insights may surprise you.

We also talk about the various options that Gen X and Gen Y investors don’t even think about, and what Kate feels about working a 9-5 and buying an expensive home by jumping headfirst into a mortgage. In the panel discussion, Miranda has a fierce take about this issue that you don’t want to miss.

The question is also raised, can someone be both an investor and an entrepreneur? This question is answered and more, with some specific investing tools that business owners can utilize.

Panelists In This Episode:

For a quick bio of each of our show participants, head on over to our panelists page.

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  • Karthik Shivram

    I am not sure I agree with the discussion on the whole House and Mortgages. I think this podcast has been pretty cool so far, but there are times when things seem plain wrong. Why wouldn’t you (1) buy a house especially if you know you are going to live in the locality ? (2) But the house on a mortgage instead of cash down ?

    i. When you pay rent, you get no tax benefits, whereas with the interest paid on a house mortgage, you get tax benefits.
    ii. A house although not to be considered an investment, it is an Asset. At the end of paying your mortgage, you have something to show for, for all those monthly payments.
    iii. With mortgage rates as low as they are today, it is surprising that you would even consider paying off the mortgage amount sooner than later, or even pay for your house with cash. Sure, you end up paying more in interest over a longer term, and the rate of interest is generally higher on longer term loans, but think of the opportunity cost – you could, if you’re a decent investor, make more than the interest of the mortgage, if you invested that money on sound investments. In 15-20 years the small investments you make in either value stocks or even Index funds, would have to exceed the interest you pay on your mortgage if historic trends continue. (Sure, there are no guarantees – but that’s investing.)

    I’ll listen to the podcast again to see if I missed something in the discussion, but it didn’t sound right to me personally when I listened to it the first time.

    • i) When you get tax benefits that means you spent money to get it. I’d rather pay tax on a $100,000 than spend $100,000 to save $25,000. One example of the 30 year vs. 15 year mortgage is that you save $144,000 on a $250,000 home by paying the 15 instead of the 30. Sure, you get more tax benefits with a 30 year but at what cost to your net worth?

      With rent, it can be smarter to rent depending on local house prices. Many would love to buy IF it was affordable and reasonable.

      ii) Sure but at which cost? An asset isn’t worth much if accompanied with debt. Just ask Lehman Brothers.

      iii) Would you borrow $500,000 today and invest it in the market? This is essentially what you are doing. Of course, everyone’s risk preference is different.

      There’s two sides to every discussion. You have every right to disagree with what was said, but that doesn’t make it “plain wrong”.

      • Karthik Shivram

        Hi Andrew,

        Thanks for your prompt reply. Much appreciated. “plain wrong” was probably too strong a term to use, but I disagree nonetheless.

        I get the concept of tax savings, and what it costs to get the tax savings. i.e., I wouldn’t sell stocks at a loss simply because I get tax savings on it. 🙂 But assuming you are paying $10,000 – $15,000+ a year in rent anyway, wouldn’t you rather that some portion of that be tax free ? I know I would.

        You absolutely hit the nail with “affordable” and “reasonable”. Knowing what you can afford, what you need and knowing that the price is reasonable is extremely important, when buying a house. (Hello subprime!!) When I was personally thinking about the benefits of renting vs buying, (I still don’t own a house btw – I’m still in my mid – late 20’s) I felt that as long as I buy a house that will not cost me much more in monthly payments than what I pay for rent anyway, it was a no-brainer. (Again, my personal opinion.)

        A 30 year mortgage on a $300k house, doesn’t cost me too much more than what I pay in rent every month. Assuming I rent for the next 30 years, I will have gotten no tax benefits, and have nothing to show for the the rent I paid for 30 years, whereas even with massive depreciation, I should have something to show for when I own a house. Let’s say the house is worth $30k at the end of the 30 year term. It’s still better than having nothing. (I know there is property tax, repairs and all that sort of things when you own a house.) Also, a $300k house is much bigger than the apartment I rent right now. (in the locality I live in.) Assuming I continued to rent, my rent would go up, when I eventually have a family, and move into a bigger house.

        Also, with the 30 year mortgage, at the end of 30 years, you stop paying towards ‘your housing’. Whereas with rent, you continue paying rent. Let’s say you are 25, and you finish off your mortgage in 30 years. Let’s say you go on to live till you are 85. That’s 60 years of rent vs 30 years of mortgage payments. I’d take the latter any day. (Of course, there will be home improvement cost …etc, but I would have to think it’d still be lower than the additional 30 years of rent.) Also, after retirement, I would greatly appreciate it if I didn’t have to make monthly payments towards my housing.

        I was also initially for a short term mortgage when I was getting pre-approval. I was in fact insistent on a 10 year mortgage. The rate of interest was much lower, and I could still afford the payments quite comfortably. (28% rule of thumb.) But then listening to some of your other podcasts, (and some others on investing.) got me thinking that if I can beat the ~3% on the mortgage interest, (which I believe I can.) (For the 10 year for me personally, the rate of interest was ~2.4%) , then I benefit by taking out a longer mortgage in the long term. Instead of funneling all of my money into the mortgage, I can invest, and hopefully that will compound at a rate higher than the borrowed rate.

        If I could borrow $500k today at a 3 % interest rate for 10-15 years, yes, I would definitely take it to invest in the market. There is of course risk to it, and as you mention, different people have different risk tolerance.

        If someone is not an active investor, they should definitely try doing a short term mortgage, because they are Guaranteed to save money on the interest they pay on the mortgage. Instead of money sitting in a Savings account, and paying interest on a 30 year mortgage, you are better off paying that mortgage in 10-15 years. With investing the money, there are no guarantees, I agree.

        Of course, there are plenty of other reasons you might not want to buy a house – you don’t know for sure if you will be in that locality for long, you might lose your job …etc. But assuming you know you will stay there for 3-5 years (when the interest is the most, and the tax benefits are maximum) and assuming it is affordable, and reasonable, then it makes sense to buy a house.

        As for contingencies like losing your job, your rainy day fund (6-12 months of expenses saved somewhere), should definitely come in handy – assuming you can find another job in the same area in that time. Of course, if you still cannot find a job, you are in deep trouble with respect to the mortgage. With a rented place, you could move to a cheaper house – here you’re stuck.

        P.S: A brief note about myself – I am an beginner w.r.t investment. I work as an Engineer in my day job. But I find that investment is important for capital preservation and growth. I have been trying to gain as much knowledge as possible about all forms of investment, and I listen to multiple podcasts and read several books all in an effort to make sure the money I make isn’t devalued simply by inflation. I found this podcast very nicely structured and have been listening to it regularly. You guys do a great job in talking about various topics – and to date I have found all of them very helpful. Even in the rare case that I don’t agree with the discussion on the podcast, I appreciate that it makes me think, and take to spreadsheets to see if what I am thinking makes sense for me. Keep up the great work, and thanks.