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Is it dumb to sell stock now to buy a house?

I'd keep the money in the stock market and borrow money to buy the house. The key is to make sure it's a house you can afford for the high interest rate period we are likely to be in for the next couple years. Don't lock in a rate, they should drop eventually and you want to be able to benefit from that.


High inflation is good for the stock market long term. In the short term inflation can drive down stock prices due to fears of higher interest rates, but this is ultimately only a short term effect.

Typically central banks respond to high inflation by tightening the money supply which dives up interest rates and makes owning a house more expensive and slow the economy so fewer people can afford a house. This should make the actual purchases price a little more affordable, and result in an increase in value to that house when interest rates eventually drop.

Over the next couple years you will end up paying a lot in interest, possibly more than the return on the stock market investment but this should eventually reveres, just make sure you can afford the interest and mortgage payments in the meantime.
 
Out of curiosity, when you have a variable rate mortgage, who decides when your rate drops, and must they do so?
 
Out of curiosity, when you have a variable rate mortgage, who decides when your rate drops, and must they do so?
Your lender (bank) decides when your interest rate should go down and when it should go up.

Within limits, the bank isn't compelled by law to set its interest rate to a certain level. What generally happens is that the central bank effectively sets the interest rate that banks may charge for lending or borrowing reserves from each other by setting the rate that the banks would have to pay to borrow those reserves from the central bank. (Usually the central bank will also pay interest for reserves that a bank deposits with them). This is known as the "cash rate". Mortgage interest rates generally (but not always) track the cash rate.

The idea is that the central bank attempts to control how much lending goes on by setting the cash rate accordingly. If they want to dampen economic activity then they will increase the cash rate and if they want to stimulate it then they will decrease the cash rate.
 
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There are many variations on adjustable rate mortgages. In the United States, mortgages that adjust annually and ones that adjust every three years are common. The mortgage contract specifies when the rate changes and what the formula to determine the rate is. For example, I once had a mortgage that reset annually to 1.5 points above the one-year Treasury Bill rate. Mortgages also often have a cap on how much the rate can change from year to year and sometimes a lifetime change cap.

All this is spelled out in the mortgage documents.

(The mortgage I had had a cap on how much the rate could go up in a year but not how much it could go down. The bank that wrote the mortgage is no longer in business. :) )
 
There are many variations on adjustable rate mortgages. In the United States, mortgages that adjust annually and ones that adjust every three years are common. The mortgage contract specifies when the rate changes and what the formula to determine the rate is. For example, I once had a mortgage that reset annually to 1.5 points above the one-year Treasury Bill rate. Mortgages also often have a cap on how much the rate can change from year to year and sometimes a lifetime change cap.
Your banks are so reasonable compared to ours.

Not only do variable interest rate mortgages leave the interest rate subject to the whim of the bank but the contract often allows bank to apply any other charges at any rate at any time that they choose.
 
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