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Ending the Mortgage Paydown vs. Investing Debate

This post is from Mark Seed who runs My Own Advisor.

A huge debt can kill your retirement plan.   This is not news.   While servicing debt, you can’t save very much money.   You can’t invest what you don’t save.  Taking on a mega-mortgage could be very stressful for young Canadians.  I should know.   We took on a hefty mortgage when we purchased our current home.

I’ve also read some recent counter-arguments to paying down the mortgage.   Mortgage rates are cheap right now and have been for years, this implies debt is “easy” to pay back and you don’t need to rush to do it.  Folks in favour of investing tout you can earn a better rate of return from investing than the guaranteed rate of return that comes from making your mortgage payment.

Here’s our approach – we do both – we kill debt and save for retirement, every month.

Why?

I have no idea what the future holds.

On reducing mortgage debt

  • We are being fiscally responsible, with our biggest liability.
  • We are reducing risk of our human capital, that is, should we lose any ability to earn an income.
  • We are taking advantage of low-borrowing costs, which may not always be available.

On investing today for tomorrow

  • We are maximizing one of the greatest assets the investment world offers, time in the market.
  • We are leveraging our current human capital, to make investments in our future selves.
  • We are increasing our savings, for any unexpected events.

As far as I’m concerned, we’ll have much more financial flexibility when we’re debt-free.   Being debt-free will also remove any emotional burden I feel owing our bank money, something that’s difficult to quantify.  Diversification principles are also important to me, which means I prefer using Tax Free Savings Accounts (TFSAs), Registered Retirement Savings Plans (RRSPs), and other accounts to build wealth instead of locking up all assets within these four walls.   I have a financial philosophy of trying to do a few things, very well, instead of focusing too much on just one thing.  I think most Canadians would benefit from killing their mortgage debt while investing for the retirement.

In closing I believe most sound (and successful) investment portfolios are a balancing act of managing risk for reward.   Most Canadians would be best served by managing risk (reducing debt) and striving for reward (building retirement savings), becoming proficient in each.

What’s your take on the mortgage vs. investing debate?

 About the Author:  This post is from Mark Seed who runs My Own Advisor.  You can join the 2,500+ Twitter followers of My Own Advisor here and join the 40,000+ monthly visitors by subscribing to Mark’s site www.myownadvisor.ca.

 

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{ 39 comments… add one }
  • pj August 25, 2014, 11:28 am

    I’ve struggled with this decision and still struggling. Should I pay down my super low mortgage, or concentrating on filling my TFSAs, RRSPs?

    I did recently change my mortgage into biweekly payments. But with my little savings i think i will fill up the TFSA rooms and RRSPs before paying extra for the mortgage..

  • Geoff August 25, 2014, 11:30 am

    We’re of a similar mindset. Although in comparison to some of my peers, the mortgage we took out in 2007 was not huge, to us it was ($400,000 – price of admission in Toronto).

    From the beginning I’ve hated having a mortgage this big, I can’t imagine the $800K ones some of my friends have; even if our house has almost doubled in so called value from when we bought it.

    So our mindset has been to attack the mortgage, but to never contribute less than the maximum “matched” rrsp/stock options that our employers offer. Sometimes we contribute even more. Our aim is to be mortgage free at 44 (I’m 39); I dream about how much better I’ll sleep at night when our mortgage is paid off entirely.

  • nobleea August 25, 2014, 12:23 pm

    We do the same thing, although I’ve never thought of the RRSP/matching contributions through work as being ‘investing’. I mean it is, but anyone mildly interested in finance already does that. When someone says invest or pay down the mortgage, I think of ‘invest’ as being over and above the RRSP/matching through work.

    In my experience, the vast majority of people that say ‘why would you pay down your mortgage when it’s so cheap? invest, or even borrow to invest instead’ either don’t invest and just want to feel good about not pre paying the mortgage, or are poor investors that pick poorly.

  • Bytowner August 25, 2014, 12:34 pm

    I can understand people who suggest you should invest over pay down when interest rates are sub-3%. I think the most important factors are quite simple here:
    1) Job stability
    2) Market demand for your skill set

    If at least one of the above is quite high, then you should probably invest in the market more than you invest in your home. I, on the other hand, have a big question mark in box number one, and not a great deal of confidence in number two. So I feel that in my situation, paying down that $300,000 as quickly as possible is important.

  • Sandeep August 25, 2014, 4:01 pm

    This is a one question where no real one answer applies to anyone and everyone has different situations to be dealt with. But I would still lean a little more towards clearing the mortgage debt. It is more or less personal thing because if you are not able to pay the debt in future because of job/health/personal reasons, it will wipe off your investments. Secondly it is not the low interest rate, it is the total amount you are paying to the banks. For most mortgages, first few years, interest amount is more than principal. Even after then,why pay any extra money to bank ? And it is not the consumer debt I am talking of, which should be get rid of in highest priority fashion. If you mortgage debt, I think 1/3 of total money should go to investing and 2/3 towards clearing mortgage.

  • debs@debtdebs August 25, 2014, 4:29 pm

    I think paying down mortgage enough so that it will be gone by a target date and then invest the rest in retirement funds, provided you are contributing to a minimum amount for retirement (at least 10%) first is a good compromise.

  • on the fence August 25, 2014, 5:24 pm

    I was putting as much into RRSP, as it made sense and still generating tax refund, invested it in stocks. At one point when our income lowers I will start RRSP meltdown and shift it gradually into TFSA.

    It made more sense to pay into RRSP than make extra payments on 2.95% interest. The ROI on the stocks was way more than the interest and the tax refund was an icing on the cake, it was always put back into next year’s contribution. This year we have little contribution room left on the higher earner’s rate.

    Our mortgage is up for renewal for the last $110K, I could just lock in to a convenient low fixed rate for this amount and forget about the mortgage debt in five years or less.

    But we also generated new $90K LOC debt to support our kid’s education.
    For this reason, I am planning to combine the two debts into a $200K mortgage and start the SM.

    I could contribute right now about $50K from non-registered investment to pay into the new mortgage, re-borrow and re-invest. I will probably be limited here by the bank’s early pre-payment schedule.

    I will continue invest the access cash – either on the original non-registered or in the TFSA account, until I can max out the mortgage pre-payment.

    Once I start the SM, in the SM investment account I will invest in Canadian stocks. On the existing RRSP accounts I will rotate the Canadian stocks into US stocks. This way the SM investment and the RRSP investment would provide some diversification (although the Canadian and US markets are tied really closely).

    The SM would allow me to convert the remaining mortgage and existing LOC “bad debt” into a “good debt” and claim tax credit.

    It also provides my kid with some room for repayment, as I may capitalize the HELOC interest if needed, although the plan is to make extra payments on top of the mortgage payment, at least to cover the HELOC interest.

  • Al August 25, 2014, 6:50 pm

    I’m relatively new to the entire wealth building game, but I’m now on my second mortgage. The first mortgage being a condo in dental school I paid the bare minimum of payments on (40 years) as it was costing me less than rent would and when you’re living on debt you owe it to yourself to be fiscally prudent. However locking up the property for 4 years I managed to gain an annual gain of 3.5% on the appreciated value.

    My current mortgage I’ve got chopped in 1/2 after 18 months and some monster payments, but I can borrow at 3% and invest in other mortgages yielding 8-15% with a low LTV (less than 40%). I recently took out a 200K line of credit at 3% and invested the entire thing into 4 different mortgages of 35-60K each. Each pay over 10% annual yield and none have missed a payment in 4 months (1/3 the loan term).

    While it’s not the Smith Maneuver in the purest of sense it’s an interesting strategy as the money received from the other mortgages allows me to make a double payment on my mortgage – which I can then borrow from again if I choose.

    I’m sure there’s ways to “tweek” the system but it’s doing well so far.

  • Sean Cooper, Financial Journalist August 25, 2014, 8:27 pm

    A very well written article, Mark. You made such a complex topic seem so simple. I agree with you. Unless you’re willing to work 80 hours a week like me to kill your mortgage in 4 years, you’re better off contributing to your RRSP AND paying down your mortgage. It makes even more sense to contribute to your RRSP if you’re using rental income to subsidize your mortgage, pushing you into a higher marginal tax bracket.

  • My Own Advisor August 25, 2014, 9:50 pm

    @pj, I figure with no debt, the world is yours….

    @Geoff, “Our aim is to be mortgage free at 44 (I’m 39)”. Once you’re debt free, all the income you make is yours to expense, in whatever home you’re in. How about that for extra freedom?

    @nobeleea,
    “why would you pay down your mortgage when it’s so cheap?” Your comment made me smile. I used to think this way, now I figure, the sooner I’m debt-free the sooner I can call the shots :)

    @Bytowner, if your job is a sure thing, then yes, invest all you want in today’s climate. I don’t know anyone who has a 100% risk-free job today. Maybe a retiree living with a $1 M portfolio and a paid off home :)

  • Jay @ ThinkingWealthy.com August 25, 2014, 11:06 pm

    I don’t think you can “end” this debate. Everyone’s situation is different. For example, if my only debt was my mortgage, then you bet your ass I’d invest anything extra!

  • Dan @ Our Big Fat Wallet August 26, 2014, 1:10 am

    I think the mortgage vs investing pay down comes down to rate of return. If the interest savings (and extra cash flow) from paying down a mortgage is a higher rate of return than investing (after tax) then it should win out. Priorities also play a factor as well since some people want to crush their mortgage debt and are willing to make big sacrifices to do so

  • SST August 26, 2014, 3:10 am

    What about ending the Mortgage (aka Death Pledge) vs. Renting (and Investing) Debate?

    A financial comparison of home ownership and renting:
    http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/a-financial-comparison-of-home-ownership-and-renting/article11952272/?from=11952313

    “Every year, Frank Tristani assigns his McMaster University finance students the task of showing whether renting or buying a home makes you wealthier.

    As Mr. Tristani scores the results, owning never wins. “Over six years, no one has been able to substantiate buying as creating more wealth over the long term.” ”

    Here’s a great Canadian calculator to play around with to see if you’re on the right side of whichever debate you choose:
    http://www.getsmarteraboutmoney.ca/tools-and-calculators/buy-or-rent-calculator/buy-or-rent-calculator.aspx#.U_wbIK6br-U

    Good luck to all!

  • Louise @ Good Financial Choices August 26, 2014, 5:28 am

    I’ve previously been concentrating on mortgage paydown, but now I’m moving to investing.

    As I believe (a) inflation will work wonders on the mortgage and (b) stocks (in a tax free account – a NISA in UK) will perform better than my mortgage rate over the 20+ year term on my mortgage.

  • My Own Advisor August 26, 2014, 9:36 am

    @Sandeep, that is the painful part of mortgages, the first few years is front-loaded with paying mostly interest – making it crucial to paydown the mortgage as much as you can. If you really had a fat mortgage debt then I could see delaying RRSP contributions just for a few years.

    @Debs, agreed!

    @on the fence, the SM is not without some major risks, but I can see the advantages of converting the remaining mortgage and existing LOC from “bad debt” into a “good debt” and claim tax credit in the process. I recall FrugalTrader was very successful at this.

    @Al, great work with the “monster payments”, I’d just be worried about the borrowing but I’m fairly conservative when it comes to that.

    @Sean, thanks for the comments!

    @Jay, true, my post assumes most people don’t have a massive LOC or credit card debt – that should go first long before the mortgage prepayments or RRSP contributions.

    @Dan, I just think the after-tax guaranteed return (mortgage payment) of 4-5% is something folks shouldn’t turn down, ever.

  • Brandon August 26, 2014, 11:20 am

    I’ve stopped prepaying the house and switched to investing. I have a higher return and if a job loss occurs I can pull money out to afford the cost of living for a while.

    Once my investments reach my mortgage balance, I may consider liquidating and paying off the mortgage.

  • canadianbudgetbinder August 26, 2014, 12:12 pm

    Great post Mark,
    We did the same as Mark paying down the mortgage and investing at the same time. Now that the mortgage is paid in full we are pouring even more into our investments.

  • Banjopete August 26, 2014, 4:00 pm

    hey MOA: end the debates…. hardly but nice try, as we can see from comments it’s a personal thing with benefits either way you go.

    My main motivation to pay down the mortgage early is to stick it to the man at the bank!

  • S August 26, 2014, 6:11 pm

    SST,
    If a person is not a disciplined investor or is not comfortable investing in the stock market, then the only way to build assets is for them to buy a house and pay of off as quickly as possible.

    http://www.forbes.com/sites/advisor/2014/04/24/why-the-average-investors-investment-return-is-so-low/

    Also, to pay a mortgage you must be inclined toward being a saver while a renter may see excess income as lifestyle enhancement money. I see this with some of my own tenants. They match their lifestyle to the place they rent. E.g. 17ft ceiling downtown loft = designer suits, lots of toys, flashy cars, drinking and dining at the best hotels downtown (tend to be young Bay St. types). In order to maintain this lifestyle there is zero savings at the end of the day, regardless of the six figure income.

    Whether you buy or rent, it really comes down to the individual’s attitude and aptitude towards spending, saving and investing.

  • Michael August 26, 2014, 9:23 pm

    Even with today’s low mortgage rates around 3%, you have to consider risk and taxes. Paying down a 3% mortgage is a risk-free investment paid with after tax dollars. Basically risk-free and tax-free.

    It is rather easy to beat a 3% rate of return out of the gate, but you might consider risk.

    The closest in risk, and not risk-free, might be a bond ETF that yields about the same. Anything else like REITs or stocks, and your risk climbs. Its been a sweet few years, but I know market risk is climbing year by year too.

    And whatever investment you choose, returns will be taxable now or in the future, unless using a TFSA I suppose.

  • Ed Rempel August 27, 2014, 2:12 am

    Hi Mark.

    From seeing the full finances of thousands of people, I can tell you in practice there is a clear winner. Those that focus on investing almost always retire with far more wealth than those that focus on paying off their mortgage.

    The #2 reason is the rate of return – it’s not hard to get a long term return higher than today’s mortgage rates at about 2.5%. However, in practice even those that invest at bad rates in GICs end up with more money than those that focus on the mortgage.

    The reason is that once the mortgage is paid off, people tend to spend most of their payment. They never get around to saving or investing much.

    Here’s my advice:

    1. Ask yourself, once your mortgage is paid off, what portion of the mortgage payment will you invest? That is the #1 question in this debate. If your answer is less than 90%, then focusing on investing is the obvious winner for you.
    2. If you want to retire comfortably, set your mortgage to pay it off by the time you retire. Then focus on investing (and have a retirement plan).

    Ed

  • SST August 27, 2014, 2:26 am

    re: “If a person is not a disciplined investor or is not comfortable investing in the stock market, then the only way to build assets is for them to buy a house and pay of off as quickly as possible.”

    A principal residence is not a true asset simply because you have no access to the capital. You either have to sell (and then rent), or take out a loan against the capital — paying to use your own money. And with ever-inflating house prices, you won’t be paying anything off “as quickly as possible”.

    But let’s say they do “buy a house and pay of off as quickly as possible”, then what? They are still “not a disciplined investor or is not comfortable investing in the stock market”…soooo…buy another house? Become a land lord? Save cash?

    Besides, there are far more investable assets available than just residential real estate and stocks.

    And you definitely do not need to be disciplined to invest in the stock market. How many mortgage holders have their accounts set up for automatic payments? Do the same with a linked brokerage account and bi-weekly market orders for index funds. Done.

    re: “Also, to pay a mortgage you must be inclined toward being a saver while a renter may see excess income as lifestyle enhancement money.”

    In the same way a mortgage-owner sees excess HELOC equity as lifestyle enhancement money?

    re: “Paying down a 3% mortgage is a risk-free investment…”

    1. Neither a mortgage (aka debt) nor residential real estate are risk-free asset classes. Think ‘opportunity risk’, among others.
    2. A principal residence is not an investment unless you also consider renting an investment.

    And what Ed said.

    The debate lingers…

  • My Own Advisor August 27, 2014, 8:36 am

    @SST, thanks for the links above. I would agree, many underestimate the cost of mortgages and home ownership: “Over six years, no one has been able to substantiate buying as creating more wealth over the long term.”

    @Louise, thanks for that angle.

    @Brandon, I’m considering the same thing actually. We’re getting close.

    @CBB, being mortgage free must be very liberating!

    @Banjopete, well, it is a personal choice in the end but I still feel doing a bit of both would serve most Canadians very well, even doing both in very small amounts, even $50 for each for an example. This way, you’re killing debt and growing wealth.

  • Ed Rempel August 27, 2014, 8:30 pm

    Hi Mark,

    Don’t you think it is a cop-out to just say “do both”? Isn’t that like a doctor saying, “I don’t know which treatment is better, so just do a bit of both.”?

    I don’t have that option as a financial advisor. Everybody has an optimum strategy, when you do all the planning. You need to pay off the mortgage at some point and you need to save enough for the retirement you want. With some planning, you can work out how much is optimal to allocate to each strategy.

    In my opinion, about 95% of Canadians should focus on investing and 5% on the mortgage. But everyone has an optimal.

    For example, the minimum is that you can pay your mortgage over 30 years and invest nothing in your RRSP. If you have an extra $20,000/year, where should you allocate that? You can use it to pay your mortgage off in say 10 years instead of 30, or you can start saving for retirement. Why would anyone pay their mortgage off in less than 30 years when they will take 30 years or more to save enough for the retirement they want?

    My point is – don’t you think it is better to do the planning than just to say “do a bit of both”?

    Ed

  • SST August 27, 2014, 9:13 pm

    “My point is – don’t you think it is better to do the planning than just to say “do a bit of both”?”

    Agreed.

    Scroll through the comments on this thread and you’ll hit a lot of “I think…I feel…I believe” aka opinions. Has anyone actually picked up a calculator and spent an hour running numbers and planning scenarios aka optimizations? Show me the math!

  • Cashinstinct August 28, 2014, 12:12 am

    Math cannot be shown 100% sure because you cannot know:

    1) FUTURE interest rates on residential mortgages in your province / region (when you will renew your fixed mortgage or affect your variable rate mortgage).

    2) FUTURE investment return rates (on the type of investments you would consider making with your savings).

    Considering that there should be a risk premium to invest on equities, investing in equities should give a better return on the long-run. That’s why people invest in equities… otherwise simply buys GIC…

    There is lots of data about PAST rates of return on equities… can you compare this data directly to CURRENT interest rates ? That’s the question.

    I am investing personally with my savings in RRSP/TFSA, I make the minimum payments on my mortgage. The long-term return on equity SHOULD be higher than 3% after-tax, so I want to build my equity portfolio with my savings.

    I will start increasing my mortgage payments by 15% (max allowed on my current mortgage) because I have extra savings and I don’t want a mortgage for the next 20 years… but it might not be optimum.

    If interest rates on residential mortgages increase to 5-6% after tax when I need to renew, I will reconsider my position and might direct my savings towards lump sums to mortgage.

  • My Own Advisor August 28, 2014, 7:16 pm

    @Ed, no cop-out here. What I’m saying is, I don’t feel there is a clear winner for most people and just like people should have life insurance (because they cannot predict the future) and have disability insurance (to protect their working capital), they should likely try and do a few things very well instead of putting all their efforts into one basket (real estate).

    By diversification, paying down debt and investing at the same time, you are spreading out your risks.

    95% of Canadians should not solely focus on investing and 5% on the mortgage; that is not the balancing act I am writing about.

    @SST, you are correct that the optimal way to go about everything is to crunch the numbers. An easier way is to simply increase your mortgage prepayments by a few % and try and set aside 10% of your income, then live your life. Without too much math, this is a win-win long-term strategy.

  • My Own Advisor August 29, 2014, 12:43 pm

    @cashinstinct, nothing wrong with your plan, it sounds great actually, the long-term equity SHOULD be higher than your mortgage rate but depending upon the size of your mortgage, there could be risks with that plan. It sounds like you understand them. Good luck with the investing, although tough to buy stuff now, I don’t see any deals sadly…hopefully a correction soon.

  • Cashinstinct August 29, 2014, 2:20 pm

    We invest with DCA in index funds to avoid trying to time the market, each month some money goes from bank account to TD e-series index funds.

    For mortgage, size is around 228k for now and it’s not CHMC insured because we had 20% downpayment. We can cover it easily each month so it does not worry me much. According to some bank calculators, we could have 700-800k mortgage… sure!!!

    I want to make extra payments on mortgage, but still invest. I agree with your approach to do both and that’s why I recently asked lender to take 15% extra payment each week.

  • Hemgi August 31, 2014, 7:53 am

    If you can get a RRSP return on investment over 6%, or a TSFA return on investment, then you can think of not putting all your money on your mortgage.

    My personal experience was an easy choice, interest rate for mortgage was at 11.5%, so no choice, everything was going on the mortgage.

    However, today with the 3% interest rate in mortgage, this seems to be easy financing and decision need to be taken differently.

    1st question to answer is: what is your annual fees for TSFA. If you are paying $100 a year for having an account for a broker, then either you have a lot of money in your TSFA or you got a damn good ROI.

    The recommendation I gave to my daughter is the following:

    1. Pay you mortgage on the basic that you will complete payment in 25 years. If you cannot do it, you cannot afford your house, buy something cheaper.

    2. With your extra money, pay any other loan that have an interest rate higher that your mortgage rate.

    3. Still some extra money? Go on the beach with your kids :-), return on investment is unmeasurable.

    4. Still some extra money? Calculate what is required to pay your mortgage in 15 years and pay this amount on the mortgage.

    5. Still some money? Put money in your TSFA if you can get more than your mortgage rate, e.g. Canadian Banks can give you a 4% that will grow.

    6. No more place in your TSFA? Put money on your mortgage.

    My two cents.

  • Ed Rempel September 1, 2014, 8:05 pm

    Hi Mark,

    I think you are missing the mark. (Pardon the pun.) From working with thousands of people and planning their lives & finances, there is a clear winner.

    Two of the main goals that most people have are:

    1. Pay off the mortgage before they retire.
    2. Build up enough of a nest egg to maintain their lifestyle after they retire.

    On average, when we first meet people, about 80% are on track for goal # 1 and about 5% are on track for goal #2. On average, what they are doing before they meet us will give them about 20% of the nest egg they need for goal #2 (e.g. what they are doing should get them to $300,000 but they will need $1.5 million by retirement in future dollars).

    In other words, the majority of people we see will already pay their mortgage off by the time they retire (or close), but hardly any are saving enough for their retirement.

    My advice: the first $1,550/month you have available above your basic budget should ALL go to retirement, so that your retirement goal may be in similar shape to your mortgage goal.

    Ed

  • Ed Rempel September 1, 2014, 8:24 pm

    Hi Mark,

    An important question in this debate is: Is it a good idea to pay off your mortgage early? I have seen the “No Mortgage Trap” leave people unhappy often.

    I know this is heresy in Canada, but I’ve seen it many times. People pay off their mortgage by age 55. Then they go on a spending spree taking a few large vacations each year, buy several new cars, buy a larger house, and do a bunch of renovations.

    Then they hit 65 and spend the rest of their life below the poverty line. It is always hard to cut back! They had become used to spending lots of money. Now they spend their retirement regretting all the things they want and cannot afford.

    If they had not paid their mortgage off early, they would not have become used to a high lifestyle they cannot afford – and they would not be disappointed all the way through retirement.

    The “No Mortgage Trap” is real and happens a lot in Canada.

    There are many ways to plan your life, but the best advice for most people is to set their mortgage amortization to about a year before you plan to retire. That gives you one year to spend a lot, which is nice – but you don’t get used to it.

    Ed

  • Godlberg September 2, 2014, 1:31 pm

    You guys are debating facts versus emotions.

    At the end of the day, sleeping well at night is what matters more. For most being debt free is emotionally empowering while debt and stock market is nerve wrecking. Many fear losing their job rather than believing in their ability to find equivalent work elsewhere. For them, the OAS and CPP, along with reduced expenses from having no mortgage and no kids at home will allow them a comfortable retirement. Having a small $40k in RRSP will pay their green fees or camping lot fees.

    If you’ve been burned in the market in 2000 or 2009, and fear the future market returns, then pay the mortgage, and afterwards invest a little, and you’ll have a simple retirement. Perhaps most important for you is to stay married to share most large expenses in retirement.

    I invest 100%. Similar to Ed’s point, my mortgage will be paid off by my 50th birthday, date at which I want the option of early-retirement, if I so choose 16 years from now. Meanwhile, I will continue to invest and benefit from compounding for the next 16 years. At that moment, I should have over a million combined in investment and pensions. I will also have a paid-off house. Whether I leave the challenges my job brings for the boredom of the all-inclusive resort, will be another story… but I will have the options.

    Again, its facts versus emotions. Investing is better mathematically but if you’ll sleep better with a $400k paid-off house and little savings versus a $1million portfolio and a $250 mortgage… then pay the mortgage first.

  • My Own Advisor September 2, 2014, 9:49 pm

    @Hemgi,

    Good advice. As you know from my site, I personally like to focus on a few things and try to do them well, in this case, it’s killing debt while investing for the future.

    We’re at #6 in your list, TFSA is full, might as well kill debt.

    Mark

  • My Own Advisor September 2, 2014, 10:01 pm

    @Ed,

    Agreed with points #1 and #2 in your earlier comment. My only quibble with it is, if folks cannot invest and pay down their mortgage, they have too much house.

    As for killing the mortgage by 55, that is a good thing, but folks that go on a spending spree are likely the same folks that haven’t saved enough for retirement in their 30s and 40s. Once the mortgage is done, mortgage payments need to be transferred to investments to make up for lost time.

    Otherwise, they will have a disappointing retirement no doubt.

    I suspect some boomers are in for a big shock in a few years.

  • SST September 3, 2014, 12:50 am

    re: “You guys are debating facts versus emotions.
    At the end of the day, sleeping well at night is what matters more. For most being debt free is emotionally empowering while debt and stock market is nerve wrecking.”

    Isn’t that one of the Pillars of Investing — being non-emotional?

    Both mortgages and the stock market should be neither “emotionally empowering” nor “nerve wrecking”. If they are, then you need to get out of both until you can get those emotions under control.

  • S September 3, 2014, 1:15 am

    Ed,
    Setting your mortgage payoff date to one year before retirement is risky unless you’re retiring at a relatively young age. What about job loss, illness, disability, divorce? A paid off mortgage would help mitigate these circumstances. Few people sail into 65 without some sort of life disruption.

    I entered the “No Mortgage Trap” at 40 and was left feeling very happy. I had excess capital to invest and as my investments grew more complex, I was relieved not to have to think about or factor in, a primary residential mortgage.

    And what would be the point of spending a lot for one year? Other than getting a really good feel for a lifestyle you cannot afford and will not have. It’s a crappy way to start your retirement.

  • Godlberg September 3, 2014, 1:34 pm

    re SST’s #36: “Both mortgages and the stock market should be neither “emotionally empowering” nor “nerve wrecking”. If they are, then you need to get out of both until you can get those emotions under control.”

    I don’t get how mortgages are either of those things but re stock market, that is exactly what I was saying and this is why Ed saying its best to invest for 95% of the people is wrong. By far, most people have not gotten this under control. As I said, I invest 100% but for the very large majority of people I know, repaying the mortgage due to those emotions is optimal.

  • A Frugal Family's Journey September 12, 2014, 2:55 am

    We also do both. Last year we refinance our mortgage to a 15-year loan in an effort to pay of our home sometime on or before I retirement in 13 more years. We saw this as both saving money on interest payments and forced savings. Right now, we are very happy with the amount of progress we are making each month so we do not pay extra towards our principal. Any money we have left after bills therefore go towards retirement, college savings or other types of investments. Seeing our net worth grow each month by almost the amount of my income tells me that we are on the right track and the formula we are using appears to be the right formula for us! :) AFFJ

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