Downpayment or Investment

[Sharp21]

a friend of mine is looking to buy a house in the $200000 range. he currently has $10k saved for a down payment. last year he made $96k & hopes to do better this year, so lets call it $100k. also, no debt.
because of his work situation, he ends up paying only 7% tax & gets a hefty cheque every year at tax time. last year it was $13.5k
assuming the same amount this year, would it be better to add $10k to the down payment, or should he use that money to invest in an index fund, a drip, or some other kind of investment.

 

[Spanky]

I general, you should put down 20% to avoid paying mortgage insurance.

As far as investing $10k or putting more down payment, this is up to you to decide. The down payment is a gurantee return of 6% (or whatever the mortgage rate might be) while investing in an S&P500 index may provide you with a return of 10.63% over the long term.

P.S. I would like to pay only 7% tax also.

Spanky

 

[renferme]

Seems like your friend is giving the Feds an interest free loan every year (13.5k), that is paid back after he files his taxes.
That's a mistake. That's over 1000 / month that he could be investing/saving.

 

[Berkshire_Bull]

Why not just put the money away for now since you know what you want for a home. If your dream house falls into your lap, it would be a good idea to have the money! My tax this year will be around $2,000 on $30,000 of income, however, $12,000 of that was capital gains/ dividends. So I'm about 7% myself this year.

 

[Sharp21]

the money is not an interest free loan to the govt. it is due to an offshore tax credit, which applies only to those people working for a canadian company, but out of the country for more than 6 months of the year.
tax is deducted every check at the regular rate (38%) & then the credit is applied at tax time, hence the big return.

 

[Craig]

I believe bennevis was referring to the amount withheld, and can't your friend reduce that (via W-4 change) in anticipation of the credit?  I'm not an international tax expert ... has your friend determined lower withholding is definitely not an option?