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Government bonds

  • 05-05-2010 2:48am
    #1
    Fentdog84
    Registered Users, Registered Users 2 Posts: 936 ✭✭✭


    A friend of mine who is financially minded (unlike myself) was telling me the other day that in central Europe (places like Germany, Holland) people tend to invest in Government bonds & rent instead of buying their own homes. My understending is that Goverment bonds are risk free, so if you took out for example a 250,000 euro mortgage, invested that in state bonds, & you would end up more money in your pocket each month than you would if you bought a house. Would that be possible/feasible?


Comments

  • #2
    woodseb
    Registered Users, Registered Users 2 Posts: 876 ✭✭✭woodseb


    what are you taking the mortgage out on?:confused:

    i think what your friend is describing is that someone investing all their savings/income in bonds and paying rent with their interest income - which could be feasible as you build up capital/savings

    if you were to borrow the money to invest in govt bonds to make this feasbile you would have to pay less in interest to the bank than the governments pay on their debt - which isn't likely


  • #3
    RoadKillTs
    Closed Accounts Posts: 1,710 ✭✭✭RoadKillTs


    Goverment bonds usually have very low yields. I think usually around the 2/3% mark so there wouldn't be any point in taking out a mortgage and then investing the monies in government bonds.
    i think what your friend is describing is that someone investing all their savings/income in bonds and paying rent with their interest income - which could be feasible as you build up capital/savings

    That would make more sense.


  • #4
    mmprine
    Closed Accounts Posts: 8 ✭mmprine


    Depends on your situation if it would work. Here in the US right now US Treasury bonds are around 3.75%, mortgage rates are 4.75%...would not work! However I am invested in AAA rated municipal bonds...schools, utilties, airports, etc. with a return of 5.3% tax-free...this would work.


  • #5
    pocketdooz
    Registered Users, Registered Users 2 Posts: 1,559 ✭✭✭pocketdooz


    mmprine wrote: »
    Depends on your situation if it would work. Here in the US right now US Treasury bonds are around 3.75%, mortgage rates are 4.75%...would not work! However I am invested in AAA rated municipal bonds...schools, utilties, airports, etc. with a return of 5.3% tax-free...this would work.

    30 Year mortgage rates in the US are 5.07%

    30 Year T Bonds are 4.24%

    Also, it wouldnt work for Munis - you couldn't get a mortgage to finance the purchase of T Bonds because you need something to mortgage against (i.e. a property).

    To the OP - either (1) your friend is wrong, (2) your friend is misleading you or (3) you misunderstood what he/she said.

    Basically what Woodsweb said above is right ...

    .


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