Business Insider
10,936,664 followers
January 17, 2025
Welcome to Business Insider’s January Money Challenge. Ready to build wealth in 2025? Start here.
Getting a mortgage isn’t cheap, and it hasn’t been getting cheaper.
Analysts expect the average mortgage rate will fall close to 6% by the end of 2025. That’s a notable drop from a multi-year high of over 7.5% this past October, but not what most of us would call “cheap,” especially after the 2% and 3% loans of the pandemic years.
If you need to buy a house (or refinance a mortgage, or take out a home equity loan) in the next year or two, it is what it is. Life doesn’t wait for interest rates.
If you’re picturing homeownership further down the road, however, let’s talk about building that down payment. Traditional advice recommends about 20% of the purchase price for a down payment, although the average payment is more like a range of 3% to 25%, depending on what kind of loan you get. But when it comes to the hundred-thousand-dollar price tag on a house, even 3% is a lot of money.
That’s why you might want to consider investing it. Interest rates are lukewarm, but the stock market has been exploding in recent months. In fact, the S&P 500 has been in a bull market for more than two years. In 2023, it returned over 23%.
Now! There are a few caveats. For one thing, this is a strategy for people who won’t need the money for at least five years. The stock market is cyclical, and if (when) it goes down, you need time to recover any losses. We’re also not talking about getting into day trading, buying and selling stocks from your phone. Rather, most financial advisors recommend a diversified portfolio of index funds or ETFs, which follow market patterns.
And if you think you’ll need that money in the near(ish) future? You can always put it in a no-risk CD for safekeeping instead.
Next Steps: Sponsored by SmartAsset
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Your challenge:
Do a little math. If you were to save a 5% down payment for the kind of home you want, how much would that be? What about 10%? 20%?
Once you have those numbers, plus your rough timeline, take a minute to consider where you’re keeping those savings. Is a high-yield savings account the right choice for you? How about a CD? Or do you have the kind of runway to invest?
If it’s the latter, take a look through our favorite investing apps for beginners, which specialize in low-fee, diversified portfolios you can set and forget.
