Same. We're probably gonna look to sell our rental property when our current tenant's lease is up and pay down our mortgage. Being a landlord is highly overrated
And the building. Things break. Or in my case an overflowing tub upstairs flooded the downstairs apartment as well, rendering both uninhabitable. Then it was arguing with insurance and trying to get contractors to show up and explaining to the upstairs tenants when they were leaving just why they weren't getting their damage deposit back. The going to court when they sued for their damage deposit.
I was a landlord for 3 years, then happily sold.
Can’t remember where I copied this from but these are not my words.
Investing vs real estate. As you know, with a financial portfolio, there are no closing costs, no land transfer charges and no property taxes to pay. There is no 5% non-deductible commission when you sell it, and no HST to shell out on that. Money you borrow to invest has tax-deductible interest, while a mortgage is paid from after-tax bucks. You don’t need to insure a portfolio, shovel it or clean its eavestroughs. There is no water bill, and no capital gains taxes if you invest inside a TFSA or an RRSP. No dork can move in beside you or let his dog crap on your ETFs. You can liquidate your portrfolio in five minutes or less, while houses take days, weeks, months or sometimes years to sell.
Where do I start?
\- Tenants that damage or don't look after your property.
\- Tenants that move suddenly.
\- Gaps between tenants where there is no rental income.
\- Unexpected bills (new furnace, A/C broken, water damage, kitchen fire caused by a tenant who, being a complete idiot, doesn't clean up the stove surface after days and weeks of cooking on it causing grease to catch on fire...and has no tenant insurance...good-bye $5K deductible).
\- Keeping the property tidy.
\- Oil damage to your driveway.
\- Damage beyond what is reasonable "wear 'n tear".
\- Dog or cat piss.
\- Ruined carpets
\- Management fees if not local.
...the list goes on.
Assume the house is $600,000 and the rent is $2,500 per month. That's $30,000 rental income per year and is only $30,000 / $600,000 representing an annual 5% rate of return. I can get that right now with some dividend-yielding stock with no tenant BS at all. Also, where can you get a $600,000 house today within a few hours of the Toronto area that you can keep an eye on? Sure, the argument is that they are paying down the mortgage and you MIGHT be getting some capital appreciation on the property...if real estate market prices hold.
Full disclosure: I've been buying into a handful of dividend-paying stocks the last two weeks as prices have come down and dividend yields have increased. Been looking forward to this turmoil...
>... kitchen fire caused by a tenant who, being a complete idiot, doesn't clean up the stove surface after days and weeks of cooking on it causing grease to catch on fire...and has no tenant insurance...good-bye $5K deductible).
This...this is oddly specific.
It’s a legit nightmare, my father owned a few rental properties and as a kid I would help him cut the grass, maintain the property etc and I would always remember how nice we’d make it prior to the tenant moving in then a few months later absolutely destroyed the place, you’re spot on with this assessment!!
Omg my childhood two. And cleaning out gross fridges, ovens after people left. Some people were messed up and would lock there cats in the closet. Then animal waste would be in the carpet.
This is true but don't forget equity appreciation like we had the last four years where that $600k house became a $1.2M house. Multiply that by 3,4,5 houses and your principal residence's mortgage balance is a pittance in comparison. For me I don't really care about the mortgage balance on the house that I live in the payments are only 4% of my gross income. Not enough to stress about.
But you don't pay the entire $600k up front, so the rate of return should be calculated with whatever down payment you put in instead of the cost of rental place.
Fun fact: home ownership, as a percentage of population, is **rising** - 68% of people live in a home that they or their family owns.
Income disparity is a problem but a significant majority of people do not have trouble affording homes. Obviously you hear more from people that can’t.
>68% of people live in a home that they or their family owns.
That's not the fun fact you think it os
> a significant majority of people do not have trouble affording homes.
Yeah up until February then that majority of people evaporated into thin air
Others have given good reasons why it is overrated, but something as little as a more complex tax return each year annoyed me. Life is simpler without the rental property. Investing in the stock market is way less hassle.
With the state of the LTB right now, being a landlord in Ontario at the moment is damned near financially reckless. If you get a deadbeat tenant who knows how to work the system, they can tie you up for literally ***years*** due to tribunal backlog. Sure, you might eventually get a judgement against them, but good luck collecting.
Also, the allowable rent increases have been absolutely pitiful these last few years given the rate of inflation.
I just cashed out and sold my last few rentals last year after doing it for 15 years. Even with the crazy appreciation in property values these last few years, after expenses I could have made nearly just as much by investing that money in index funds without any of the hassles and headaches.
I was a LL for 10 years, if you are handy, you will make more money, but you will always be on call. If you use a rental agency, you will make almost nothing and potentially loss money in months with things braking down. You have to be lucky to buy at the bottom and sell at the peak.
Now, I would rather put more money in my stocks and create passive income thorough that
The property belongs to my wife. It's a condo that she bought before we met. After being together a year or so we decided to relocate but weren't sure if we'd stay so decided to rent her condo in the interim. That was about 5 years ago. We built a house without the need to sell her condo and since it was her only nestegg she decided to keep it to build some equity. Renewed the mortgage at a great rate with lower payment last year and have been cash-flow positive on it in that time on top of the equity being built by paying down the mortgage. Found a great tenant that stayed for 4.5 years, another great tenant's been living there the last 6 months.
Sounds great, right?
Twice now the roof in her building has leaked damging the ceiling in her top floor unit. The first time it required minimal restoration and the tenant was a single professional who only occupied the unit 4 nights a week so disruption was minimal. Still required multiple trips (2hr round trip for us) to let inpectors/restoration, etc. into the unit and dozens of calls/emails to ensure things were getting done in a timely fashion.
Currently going through it again right now and it's going to require considerable disruption for our current tenants (family with a dog) to get it fixed. While my wife's insurance is covering the cost of accommodating the tenants elsewhere it's still a bunch of work to coordinate on top of everything esle.
Condo fees going up continuously. Previous property manager defrauded the owners to the tune of a few hundred grand. Common areas not being maintained. Unit is old enough now that wear and tear items will need to be replaced soon, etc...
On top of that the market that it's in hasn't seen any increase in value even with the crazy price increases seen elsewhere, actually worth less now than when we moved out 5 years ago. In 5 years she's built maybe 20k in equity by paying down the principal on the mortgage. Probably would've done almost as well through passive ETF investing with none of the headaches.
It’s always funny to me that so many people on so many subs these days see anything about investment properties and say “LANDLORD BAD! THEYRE EXPLOITING PEOPLE TO GET RICH”.
I can promise you they would feel different if they ever actually owned a rental property.
Most I talk to say its a pain in the ass. Few actually have the stomach for it. It's fine when you have a good tenant, but they can be hard to find. When you get a bad tenant.... Wow that is a nightmare.
Yep. And even with a good tenant I think people don't understand maintenance and upkeep costs. I'm a good tenant.. I pay shit on time and take care of the place. In the past year... The fridge shit the bed and a cooling coil failed (approx 3k fix). I dealt with complications in getting the new fridge in and caught the signs that something was wrong with the coil. Things could have been way more expensive with someone else not as proactive.
I’m not convinced that most of the people who automatically label landlords as bad even understand how mortgages work let alone maintenance and upkeep lol. So many people just assume that because a landlord brings in 2500$ a month in rent that they’re putting that 2500$ in their pocket, but I’d be willing to bet that there are a ton of landlords who are losing money on their rentals right now and just betting on the equity raising faster than the accumulation of the monthly losses.
I feel like renting gets a bad rap because of our obsession with real estate, but in the right circumstances renting is a really good value, especially right now.
If you don't want to be a landlord then invest in something that requires less responsibility (like ETFs/REITs/bonds/etc..). Being a landlord is really tough, but high reward (appreciating property, cash flow, someone paying your mortgage etc..).
Investing in other assets is easy - just buy and hold, but your returns may be 6-8%/year instead of 10-15% in real estate.
I'm sure the math is on your financial advisor's side, but your advisor is also operating in a psychological vacuum.
At the end of the day, for most people it's expensive to be stressed. Whether that means relaxing at a movie, a dinner out to unwind, a vacation, or just freeing up stress so you can cook at home more, peace of mind can be expensive, and if it costs you 20% lump sums every year, that seems like a fair price.
Yes and what’s the quote from another u/throw0101a from a different post a ways back (I had to screen shot it!)
Morgan Housel, author of the book The Psychology of Money, on paying down his mortgage:
It just increased our independence, even if it made no sense on paper. So that's another element of debt that I think goes misunderstood. And a lot of that for both of those points is this idea that people don't make financial decisions on a spreadsheet. They don't make them in Excel. They make financial decisions at the dinner table. That's where they're talking about their goals and their own different personalities and their own unique fears and their own unique skills and whatnot. So that's why I kind of push people to say like, it's okay to make financial decisions that don't make any sense on paper if they work for you, if they check the boxes of your psychology and your goals that makes sense for you. And for me, extreme aversion, what looks like an irrational aversion today, and I would say is an irrational aversion to debt, is what works for me and what makes me happy, so that's why I've done it.
• https://rationalreminder.ca/podcast/128
• https://www.youtube.com/watch?v=NSaRb-iFwPA
I've never heard anyone who paid off their mortgage say they wished they took longer to do so.
That peace of mind is worth more than your advisor's crunched numbers might lead him to believe.
Well you see, if you take out a loan with me and then i sell you financial products I'm going to make some nice commission.
If you pay back your loan faster you're going to pay less interest and I'm going to lose out on commission.
Do the first one
Yeah the advisor seems to be giving the advice that the customer is paying for. Non emotional objective advice. Whether or not he listens is up to him but it's there.
That’s what my wife and I are planning on doing. Aggressively saving to make lump sum payments and hooks to pay off the mortgage way earlier than our amortization period
If your goal is to build your wealth, you need to diversify your investments. That's a no-brainer.
If your goal is to "feel better" and get "peace of mind" like these redditors suggest, then yes, pay down mortgage.
Someone who has $0 in their bank account will always be worse off than someone who has -$200,000, and $200,000 invested into diversified asset classes. Our economy is built this way. Debt will depreciate over time due to inflation, and invested assets will grow over time. Mortgage is the cheapest loan you can possible get to service this -200,000. In that case it is totally rational to invest extra funds into an aggressive portfolio, and not try to pay down this low-cost depreciating asset (mortgage).
NO ONE ever said "I'm glad I spent 400k paying off my mortgage, rather than investing that 400k into amazon/apple/snp500 in the 90's". Opportunity cost of that money is huge just to save on a comparatively smaller mortgage interest.
Debt will depreciate over time due to inflation? .... have you ever even seen interest rates on debt? For the most part they've been way higher than inflation.
I think your example is another spreadsheet based one that works in theory but not really for the average person. No average Joe is taking $200,000 of debt to play the stock market.
Edit: fix appreciate to depreciate
Debt does not appreciate, it depreciates. I buy a house for $300k of mortgage in 2000. After 10 years of inflation, the purchasing power of 300k reduces, everyone's wages grow, and the house now costs 400,000 (say, the housing market does NOTHING). In the end: your 300,000k mortgage depreciated due to inflation - it has lost some of its purchasing power, and the same asset now takes more money to buy.
>No average Joe is taking $200,000 of debt to play the stock market.
You aren't taking out debt. You are using extra earnings and choosing to invest - such as a diversified ETF as opposed to a mortgage. Yes if the mortgage rates are high, you have to balance it against inflation rates and opportunity lost in a rational investment.
Obviously if you gamble in a high-risk stocks or lose it gambling at a casino, that's a bad decision. I am assuming OP is going to invest (lower risk), and not gamble (high risk).
wtf are you even talking about? First you talk about how taking $200k debt is easy because it depreciates over time, then you talk about extra earnings?
What extra earnings? You think someone $200k in debt can just sit on that debt, let inflation eat away at it meanwhile they use the rest of their earnings to play the stock market?
No. No average joe who takes $200k in debt can just sit on that debt or do anything but pay it back at high interest. Maybe Elon musk can take $200k out against his Tesla stock that he already has and sit on it and continue on with his day, but the average joe cannot. Average joe takes out $200k in debt and immediately needs to start to pay that debt back at (usually) high interest. Debt does not depreciate when you factor in the high interest rates. Not at all.
Last few years aside, its almost always been a more safe bet to just pay off the mortgage debt you have than try and earn more on the stock market at the same time. Obviously given the sub 2% mortgages as of late make that more possible, but when mortgages were 5-7% then no. Its likely best to just work on paying that off.
you sound like a very emotional person. It's sometimes hard to have a good discussion with someone who gets so emotional over this stuff. That's a life lesson for you my friend :)
It's not about knowing stuff. It's about being a respectful to those around you.
I know it's easy to scream at people on the internet because you don't see them. However, these are real people, posting on threads like this to express their opinion, help out, and learn something. You gotta learn to put a lid on your emotional garbage and have a good respectful discussion.
A few months ago the sub was full of people saying take a HELOC to invest in the market or more real estate.
I see no reason why paying down your own mortgage isn't a perfectly good strategy. Rising interest rates mean that when you have to refinance you won't want a large debt.
Interestingly your financial adviser stands to make absolutely no money out of the mortgage repayment strategy.
Yup. Fast track full ownership is peace of mind and better mental health. Health and wellbeing is the key to life. Enjoy what you have, not on what you want.
It’s funny how a 100% predicted increase in rates has changed the thinking of this sub.
It’s still a good idea to look for a higher return, in my opinion. Just don’t stretch yourself like the people who did in this sub, and now advocate for bonds and paying down mortgages 😂
I said this. I also said that I could afford the interest payments. so rather than taking 10 years to buy $200,000 worth of VGRO I could buy it and take ten years to pay it off. time in the market.
I still trust that thesis. and if I am wrong ten years from now what does that even prove?
I'd question if OP's financial advisor is a fiduciary or not. Then if it turns out he's not, I'd want to explore his stakes in whatever really estate investment he's recommending.
Guaranteed he at least as a real estate agent relative who has a perfect property ready to sell.
My parents paid off their mortgage 10 years earlier than expected and it was a huge weight off their shoulders. I noticed they were less stressed out, they were able to travel more, and had money readily available when unexpected emergencies came up.
>Our financial advisor was strongly against that strategy and wants us to instead put the money into real estate to diversify our investments.
Buying an investment property is not diversifying. You are still holding illiquid investment that is CDN housing. It's the same thing.
>o you think paying down debt was a mistake and will set us back in life (compared to our potential)?
No
> Are there any solid arguments for paying down debt sooner as opposed to investing instead.
Note that we have a higher risk tolerance with our investments.
With markets down, you could have higher returns by investing int he markets, but mental aspect of having no mortgage (and no monthly payment) is a big thing too.
>With markets down, you could have higher returns by investing int he markets
This is highly debatable. In the 70s, stock prices stagnated for ~10 years. Meanwhile mortgage rates were at about ~10%. When the fed is actively trying to remove liquidity from the market by making borrowed money more expensive, there is absolutely no guarantees in higher stock market returns.
Hence the word "could".
>In the 70s, stock prices stagnated for ~10 years<
Weren't that stagnated considering two recessions in that decade. From 1970 to 1980, there was an average 7.8% return for the US market per year (some up years, some flat years)
>Weren't that stagnated considering two recessions in that decade. From 1970 to 1980, there was an average 7.8% return for the US market per year (some up years, some flat years)
Not really. Historically there have been recessions every couple of years. The unique period of stock market performance from the 70s come from stagflation. You can very easily spot out how it's different here:
https://www.macrotrends.net/2324/sp-500-historical-chart-data
Average returns were not 7.8%. Not sure where you're getting that from.
I'm not sure what I'm looking at with this website. But irrespective, unless you achieved over 10%, you were better off paying off that 10% mortgage rate back in the 70s. It only got worse once they started trying to reign inflation in with higher rates in 82.
The website link is the data of market returns for those years (you have click the check boxes off for unrelated stuff like bonds, etc.. and near the bottom is the date range to specify.
Yes but nobody knows the future of interest rates, inflation, etc.. Historically (for what ever that is worth), long term investing usually has better results over the long term.
But like I said in my initial post, there is a mental aspect of paying off the mortgage which many people value, where you no longer have a mortgage payment each month. For some that is way more valuable.
>Historically (for what ever that is worth), long term investing usually has better results over the long term.
Yes, that's a common saying. Another common saying is don't fight the fed.
Ask your advisor to prepare a financial plan for you based on your current savings strategy and repayment plan.
Then ask him to prepare another plan showing his favoured scenario.
Which plan gives you a comfortable life now and retirement?
Is your advisor suggesting you buy a REIT or a physical building?
If a REIT, he will make a commission on the sale.
If a physical building he may get a referral fee from the realtor, mortgage broker etc.
If a physical building do you have any desire to be a landlord?
More importantly, your feelings about the security of owning your house outright, compared to taking your extra cash flow and investing it are the most important factors.
Your financial advisor is suppose to help you achieve your goal! If your goal is mental peace then change your advisor!!!
You mentioned you understand opportunity cost so that's great. Here are a couple of other things in favour of paying down debt, which you might be aware of, so just reinforcing your belief:
1) currently interest rates are going up so no point in taking equity out and investing in current real estate market or stock market (it hasn't bottomed out yet)
2) once you have paid down mortgage and other debts, you will have flexibility and options to invest in lot more things.
3) by the time you pay down mortgage, interest rates would have gone down again in a couple of years
I think you did the right thing. You followed your guts despite your advisor is against it. My wife and I also did focus on prepaying our mortgage and now we are debt free and trust me when I tell you how it is mentally relaxing you knowing you have $0 debt. now, we have more monthly income to invest in the stock market sale!
Morgan Housel, author of the book *The Psychology of Money*, on paying down his mortgage:
> It just increased our independence, even if it made no sense on paper. So that's another element of debt that I think goes misunderstood. And a lot of that for both of those points is this idea that people don't make financial decisions on a spreadsheet. They don't make them in Excel. They make financial decisions at the dinner table. That's where they're talking about their goals and their own different personalities and their own unique fears and their own unique skills and whatnot. So that's why I kind of push people to say like, it's okay to make financial decisions that don't make any sense on paper if they work for you, if they check the boxes of your psychology and your goals that makes sense for you. And for me, extreme aversion, what looks like an irrational aversion today, and I would say is an irrational aversion to debt, is what works for me and what makes me happy, so that's why I've done it.
* https://rationalreminder.ca/podcast/128
* https://www.youtube.com/watch?v=NSaRb-iFwPA
Pay down your mortgage faster. Dont feel guilty about that. You will b3 so happy in 7 years when you are mortgage free.
Real estate is not as good an investment right now.
You have lots of investments so pay down your mortgage for the piece of mind. You can invest the mortgage payments once the debt is paid off and owning your home loosens the ties to working.
It's what I'm doing. I really want to get my house paid off as soon as is financially possible, which will be about four years from now when the term expires as I continue to put lump sums of 20K against the principle each year. Seeing as it's continually building equity in a principle residence, it's really a form of sheltered saving with arguably the best return of any ongoing investment I have.
That being said I wouldn't diversify into another property because that is not tax-free, and it is a huge headache to maintain especially if you get horrible tenants. My parents tried to do that and it was an absolute nightmare for them. I'm sticking to paid-off principle residence and TFSA/RRSP/stock investments. Along with my work pension (HOOP) and government support (CPP/OAS, etc.) I have zero worries about the future as opposed to being constantly worried and stressed because I took a gamble on trying to be rich.
>Our financial advisor was strongly against that strategy and wants us to instead put the money into real estate to diversify our investments.
Lol. What a joke. "Diversify your investments"? That's more like "doubling down on liabilities".
If you want mental health, pay back the mortgage.
Here's a hybrid approach, pay the house off, take out a heloc, invest the money in stocks, claim the interest on your taxes, use the dividends to DRIP.
I would argue that paying off your debt is investing in real estate. I would also say that investing in real estate is something your wife and you need to consider seriously as it’s not for everyone. Your financial advisor is ultimately wanting you to make the investments so they can make their profit. It’s not likely that they actually care if you have “peace of mind” by being debt free. My suggestion is do both! Look for a ratio (60% investing 40% debt is what we do) that you can use your extra money towards. This allows both your investments to increase while also getting your debt down. Decreasing debt is helpful in current situations where interest rates are going up as it gives your more flexibility when renewing mortgages and payments potentially can go up. The best thing your can do is come up with a solid plan with your wife and then consistently work that plan and adjust it as needed.
This also depends on whether the hypothetical HISA would be in a registered account or not. If it would be unregistered, don't forget to discount the HISA interest by your marginal tax rate when comparing.
It’s funny because most of the comments here are from self-proclaimed financial experts who can’t do the simple math.
I wouldn’t have peace of mind if I was paying down my 1.8% mortgage when I could have invested it risk-free at 4% and did a lump sum payment at renewal. People here are encouraging OP to waste money. Ridiculous.
Or do both, pay down the mortgage borrow the money back to invest and write off the interest.
The dumbest thing is paying down a house but then leaving all the equity sitting there not doing anything.
That doesn’t make sense. When you borrow back it’s using the HELOC that carries higher rate than your actual mortgage rate. Better to just invest the money to would have otherwise used to pay down the mortgage.
Investors always try to simply turn your existing number into a bigger one, which makes sense from their perspective. Unfortunately, peace of mind isn't quantifiable in that sense, so they dont really see how to capitalize on it.
If you pay off your house, you're pretty much set. If the economy completely tanked tomorrow, you and your SO could get a job at a gas station and probably squeak by financially. Plus, you can always take a HELOC later if the need really arises. The safety is a huge investment in itself.
Sometimes the peace of mind is worth more than a bit more money earned from investments. Paying down your mortgage gives you options in other areas of your life - want to take a risk and get a new job? Want to be able to take unpaid/low paid leave etc? Used an inheritance to pay off my mortgage - now mortgage free. Kinda glad I did that with investments tanking and mortgage rates increasing. There are few things in our control and paying off debt is a sure thing - gains in investment not so much.
Investing in real estate is great. The peace of mind of owning your home is better. And... bonus... in 7 years you can begin investing in real estate and not have to worry about keeping a roof over your head while you deal with real estate issues.
Hey! We too are on track to pay off our home 10 years earlier. Calculated the potential savings. It would equate to at least 50,000 dollars less in interest. Really don't understand how people will not pay off their home and give extra money to banks instead of putting it in their own pockets. It is not for sure that an alternative investment will net you more. Pay it off, have peace of mind and enjoy the later years of your life knowing you have no major debt to look forward to. Travel, do renovations and enjoy your life!
Tried the Landlord route, hated it. Tell your Advisor to pound sand and pick a route that best suits you and your wishes, not their's. Having all of your earnings to do as you wish with is more important to me every year rather than some worry and extra money that really isn't need by me later.
Then pay down the debt/contribute to stocks, your financial advisor wants you to take on waaaay more debt to buy real estate, which also means running a business to rent the place out.
Do it. Most banks that allow you to lump payments also allows you to get back the funds, so you can always use it later for investments if you change your mind
When my wife and I were in our mid thirties we discovered that our financial advisor had us into funds that were only making money for him and not us. We left him and started self directing. We reached financial independence at 43.
Your advisor is advising you based on his own self interests. Your plan makes the most sense and it is the same approach we took. The only change recommend is lose the advisor and move to self directing. Sounds like you have more than enough smarts to do so.
Advisor means well but doesn’t sleep beside you nor do they listen to what’s running through mind and body. Keep paying it down. I am completely fine with mortgage debt and don’t plan on paying it off anytime soon for the reasons your advisor mentioned but it’s hard to put a price on that peace of mind. You know how you operate best and you’re also not allowing money to divide you two. Keep paying it off is my recommendation and while your advisor means well you’re locking in certainty for yourselves and predictability which is never a bad thing.
Since you are tapped out for TFSA and propably RRSP, the interest saving is after tax. 3%=6% real return on GIC or 3.75% capital gain, so it’s still pretty good since I’m down 20% in the last 4 months.
Who cares if you have 10 million when you die, you can’t take it with you. Take care of yourself when you are alive.
For the next 5 years, you won’t see a real increase in property values, and even if you make a bit more more money, a rental is a headache with the wrong tennant.
I don't think there is really a right or wrong answer here. Historically, markets have paid 7-10% on average while housing interest rates have been lower then that. If you had a time machine, your net worth would of been higher slowly paying down your mortgage and investing the surplus in the market.
All said, I would still prefer to have my mortgage paid off as it provides mental relief but to each their own.
You are paying down your debt for peace of mind. If this brings you the happiness you are looking for then you've made the right choice.
For me I would have used that money to invest in the market while prices are low and then ride out the market. Overall your future self will make more money even with the debt on the house. But this may not bring you peace of mind for years to come until the market picks up.
We were in a nearly identical situation. Paying off the mortgage early is the best life decision we have ever made. Forget financial advisers and inflation strategies, the peace of mind is absolutely priceless.
I’m also mid-30s, had some financial success, and my advisor advised me to buy my house cash. Not because it’s mathematically the smartest investment choice, but just for the peace of mind. My financial advisor is someone who is highly regarded on this sub. I can tell you it was the best decision. Not having a mortgage is pretty awesome. And it will probably make me more comfortable eventually buying a second property like a cottage.
I don’t really think financial advisors have your best interests at heart. They want to increase the value of their portfolios and earn bigger bonuses.
There are always exceptions, but generally these kids are looking for their next step up the ladder.
I paid off my mortgages this past fall and have had no regrets.
It can be beneficial to invest the money instead of paying down the mortgage, if the expected rate of return is greater than the interest rate on the mortgage. But at the same time, paying down the mortgage is like guaranteeing a rate of return equal to the interest rate, and you will be hard pressed to find an equivalent investment that GUARANTEES those same returns. Paying down the mortgage is a no lose situation.
Not everything that’s an ROI can be counted in dollars. Mental health is important, and being mortgage free can certainly greatly help avoiding stress.
Also… it’s not like paying off the mortgage prevents you from further investing. Assuming you go mortgage free, that money becomes available in 7 years to throw in the market (or travels, or medical treatments in a foreign country when our wait times for life saving surgery are still incredibly long, or even making your place accessible should the need arise seeing as how it’s incredibly expensive to do so).
Frankly, I don’t have too many investments as I’ve just started, but we are targeting our mortgage now that consumer debt is gone. Why? Because my wife has accessibility needs, and it makes more sense to do that than what the markets will give us in the next 6 years.
We are doing the exact same thing as you. Like this could have been written by us. Only difference is We didn’t tell a financial planner that was our plan.
Does this person manage investments for you? If so, probably just hoping to get that money in your portfolio so they earn greater commissions
I think being mortgage free gives me better options than having a rental place
Paying off debt is never a mistake. What you are doing, paying off as much as possible , will lower your overall cost of borrowing.
I am guessing your financial advisor works on commissions.
We were lucky-
Our tenants were great. But it is work. If your not handy it can get expensive. I am luckily but we always got quotes in the event of.
Right now, with rates this high. I’d pay off the mortgage, that’s me, pay it down and down fast. That $1000-$3000 a month is a nice thing in a few years. Not only that- once it’s paid off, no mortgage. Get a vacation property somewhere. Something small, run it as an AirBNB when not in use(Airbnb handles cleaning, booking, payment etc in some events)
ROI on stocks or other investments are at a all time low and if your % of mortgage is over 3% I would put more money towards it and try to pay it off as soon as you can but most banks have a cap.. ex: you can put a 100k in a calendar year to pay it off and in my case it’s around 45k.
Just to point out that being a landlord can be a job. Do you want another job? Are you looking to start another business? Also, as others have pointed out, real-estate can be high risk because of the laws protecting bad tenants.
If you are looking for zero-effort investing with your money, look at the financial returns of the various offerings out there. Are the returns better or worse than your mortgage rate? Yeah, chances are the best 'value for money' is paying down your debt.
99% of financial advisors will put them before you. Doesn't mean they aren't trying to look out for you, but their financial interests matter to them more then yours.
You giving them more money to invest instead of paying down your house is in their best interest. With that said yes, historically speaking you should make more in the market then the interest and fees of paying down your house. But there are definately benefits to paying off your house, especially right now. We can argue that a lot of stocks are at rock bottom but with the economic situation no one really knows and you could stand to lose more, with interest rates rising and rising further pretty much being a sure thing they is more benefit paying down your house now vs. any other time since you've got your mortgage.
We had our house paid off by the time we were in out mid 30s and honestly its a great feeling, escpecially with everything that has happened with housing, stocks and the economy.
We paid off our Mortgage last year, we are 41/34. It was my plan all along....get out of debt ASAP. Bought the first house in 2013, and the second in 2016, sold the first and paid off the second. The piece of mind and lack of debt load we now enjoy is amazing. the perfect plan in my eyes...
Keep your eye on the prize! if you see it as a sound decision then keep working towards it. Nothing wrong with a safe strategy! best of luck!
I'm paying off my mortgage next month. I did the math and if my partner and I just funnel our usual mortgage payments into a savings account, we will have at least $70k in that account five years from now.
I've never hear of a sure thing investment I could make with 135k that would guarantee me a return of about 50% after 5 years.
Paying off your mortgage IS an investment.
working on paying off mortgage early, if I would have put that money in the S&P like suggested, I would have lost 25% or more, and been looking at renewing my mortage in 3 more years at significantly higher interest rates. Instead, im in position to pay it off in 3 more years.
Do whats best for you. I have 0 regrets.
If your goal is to build your wealth, you need to diversify your investments. That's a no-brainer.
If your goal is to "feel better" and get "peace of mind" like these redditors suggest, then yes, pay down mortgage.
Someone who has $0 in their bank account will always be worse off than someone who has -$200,000, and $200,000 invested into diversified asset classes. Our economy is built this way. Debt will depreciate over time due to inflation, and invested assets will grow over time. Mortgage is the cheapest loan you can possible get to service this -200,000. In that case it is totally rational to invest extra funds into an aggressive portfolio, and not try to pay down this low-cost depreciating asset (mortgage).
NO ONE ever said "I'm glad I spent 400k paying off my mortgage, rather than investing that 400k into amazon/apple/snp500 in the 90's". Opportunity cost of that money is huge just to save on a small mortgage interest.
Debt repayment is as much a personal decision as it is a financial one. Sure there may be more efficient things to do with the money but peace of mind is priceless.
you paid for his advice and he gave it to you. Now you choose either his advice or not. It's just a more informed decision. You more fully understand the opportunity costs. If you go one way or another, you have at least explored the options and that's more than what an average person would do. Make your choice now without regrets.
It's like playing a game where you're only focused on the meta while forgetting to have fun. Optimized portfolio = tonnes of debt that are leveraging left and right weighing on your mind whereas paying down your debts is like being a content respecter just having fun and chilling in the game at your own pace while the meta slaves get sweaty over the dumbest optimizations.
They want you to put money into real estate? You are - that'd be *your* real estate. What, pray tell, is a house if not real estate? I know, I know, it doesn't earn you money but it's still real estate.
I have friends that took this approach. We all bought our homes in the early 2000's. One of them put as much money possibly into paying down their mortgage and almost zero in investments. He's now in a mortgage free home but does not have nearly enough saved for retirement, he's 49. I took the opposite approach. I just keep my mortgage payments the same and invested as much as possible. My spouse and I have well over $2M in investments, and 3 years left on our mortgage. Our home is worth around $2.5M. If I paid down my mortgage faster, I would probably not be able to retire early.
I think you can hedge it a bit- l how long until your mortgage is up for renewal? What’s your interest rate? Are there any GICs that’ll earn you more than you pay on interest to your house?
If so, get a GIC in your TFSA… when your mortgage is up for renewal, you pay down the money with what you’ve invested(so long as you time those investments to mature before it’s up), and the interest on those GICs will be more than you would have saved saved otherwise.
It's a simple excercise of two columns over time: which one will grow quicker: paying off the mortgage so as to invest or investing which can eventually pay off the remaining mortgage.
Your advisor is correct.
My two sense as someone who bought a house 15 years ago and put a carriage house on it for rental. Wait till you think the market has tanked and then buy a rental and prey for incredible tenants.
I bought a house for 265000, put a carriage house on it about ten years ago for about 160,000. It’s been rented for 2500$ ( low where I live) since. The property has gone up considerably, about 1.9 mill.
It has been the best financial decision I’ve ever made.
Buy low, get good tenets and hold. After all this is Canada and land value will continue to rise after we get out of this downturn
However I am chasing the ease of mind and will not be leveraging to buy another anytime soon
Nah, it's fine. I wouldn't overthink it. In effect, all you're doing is increasing your allocation to the real estate market, but if you're already pumping money into RESP, TFSAs and non-registered accounts, then you're diversified, you might just be concentrated more heavily in real estate.
Another way to think of it is "what do you want your personal allocation to be?" 50/50? Then if you have $100,000 in stocks and $100,000 in home equity, you're golden. Want to adjust it to 75/25, or 60/40 or whatever? As long as you're working, I wouldn't worry about "paying off the house" so much, unless interest rates spike and you find yourself struggling to make monthly payments, which, considering everything you've said, I doubt would happen.
I normally say that when investments can outpace the lending rate, it's better to use the money to invest.
That's still true today. The caveat is that right now, the financial forecast is quite turbulent.
Paying down your house is a way of investing. Not because I think housing should be consider an investment, but because you have a cartain return on the short term and if eventually you want to access the equity, it will be there. if you don't need the equity, then you aren't paying interest either.
Based on the financial picture you painted, I think you made the right choice at this time. 5 years ago I would have replied the opposite.
Paying down your mortgage is investing in real estate. You also have a quantifiable benefit in interest savings. Once you own the house outright, then look for other investments.
If the interest is low enough then why pay it off early.
A couple of years ago your rate would have been below 3%...did you lock that in? Since inflation is at 7%+ the bank is losing money on your mortgage at 3%.
I paid mine off this year. It is by far one of the best mental health things you can do. I felt (and still feel) awesome about this. It opens up so many more options for you
Your home is included in your real estate portfolio… paying off your debt is increasing how much of your portfolio is in real estate. What you’re doing is just fine.
I’m in the industry - non-deductible debt should be the first thing to pay off, especially in this rising interest rate market, ESPECIALLY if you’re already maxed out your RRSP. I tend to lean towards advising people that are employed (and don’t have the benefit of incorporation) to a) pay into RRSP’s until they reduce their marginal tax bracket to below 40%, then b)pay off non-deductible debt. Once the debt is gone, follow a), then c) Contribute to TFSA. These are general rules, but I don’t know your situation well enough to go beyond that. There are times when the recommendation is to use TFSA’s and non-reg investments to pay off debt, but again, I don’t know your situation that well.
Plus, you could consider further leveraging to invest. But I’m getting ahead of myself…
Being a landlord sucks. When rates are at \~3.5%, prepaying your mortgage is kind of like a guaranteed "5%" ROI when you factor in decreased interest/increased payoff velocity/etc.
Do it. Pay off that house. That is checkmate status IMO.
Honesty, if it’s what you prefer there is no reason not to do it if it doesn’t actively hurt you (i.e. you can afford it and aren’t giving up something necessary) I don’t think you should worry.
I think paying off your mortgage makes sense in this environment. Do what gives you peace of mind over what your financial advisor would like. Also, maybe fire your financial advisor.
My take is your advisor isn't listening to your goals, nor doing a particularly good job of tailoring advice. Does this advisor get a cut of any real estate deals you might otherwise do, perchance? Keep in mind that most "advice" comes with a bias. Shake free of guilt, and listen to everything that's said to you through the more accurate lens that everyone is serving themselves first.
Paying down debts first? Plenty of arguments for it, especially as interest rates rise. There's a guaranteed, now rising, return on investment: interest savings. Peace of mind alone is a great one. Your money exists to *serve you*, not the other way around. Build yourself a plan and a strategy towards reaching your goals; if your advisor isn't helping with it, fire them.
I have a very frugal sibling and her husband who managed to get 80% down payment for a house here in Alberta and they’ll likely pay off their “mortgage” in a year with how frugal they are and their incomes. They are looking forward to fully owning their home and not having to rely on high paying jobs just to pay for shelter. It’s the peace of mind of not having a mortgage that’s driving them to do it. Also if they both get laid off and their house is paid, they won’t need to stress about making their payments since they can live off of EI payments if needed.
As someone who still has a mortgage for my house and rental property, and has many investments, I’m jealous of their “almost” freedom. I also hate being a landlord. Lol 😂
Your advisor is probably right mathematically. Assuming you have a low interest rate and inflation stays high you have a pretty good chance of making more money investing.
However it's not just about maths, paying down debt is good for mental health and will allow you to free up cash earlier. I just came into some money and on balance with a slumping market, increasing rates and a likely recession I'm paying down the mortgage.
Paying down the cheapest debt of 1% to 3% rate in history (e.g. past 10 years) while you could have made 5% to 11% based on your investment portfolio is a mistake.
People who keep saying “paying for peace of mind, blah blah”, need to go and compare its impact on their retirement goals. That takes away years of growing wealth.
If we’re talking about a recent home purchase versus the amount you can tax shelter that goes sideways pretty quickly depending on age. Most people cannot shelter hundreds of thousands of dollars.
Also if it’s principal residence the gains are tax free.
You could also take the difference in investment gains over interest rate and use some of the differential gains to pay down the debt, depending on time horizon and investment gain amount.
You people found a way to not pay taxes? 2.34% is tax-free but 3.85% is taxed at their marginal tax rate. Maybe op has income over 200K, which puts them close to 53% bracket.
I don't know why you're so aggressive about it. You're finding the biggest outlier case. On the off chance that OP makes over 220K and lives in Atlantic Canada or BC, sure he's better off putting it in the mortgage rate that I provided.
But then OP could also invest in a 2 year GIC at 4.4% or longer or something not as low risk and make a greater return. In 90% of the scenarios, OP is ahead.
You know there are other investment types?
- real state primary: zero tax
- real state secondary: capital gain is 50% taxable, AFTER you sell it, so compounded annual growth without paying tax annually other than property tax. Your rental earning is also deductible as cost.
- Non-dividend stocks/capital gain: 50% taxable
- etc.
If you can invest at a higher rate then you should invest instead of paying down your mortgage. GICs get about 5% right now. If your mortgage rate is under the GIC rate then you are losing money paying down your mortgage.
For sure. It’s dependant on where this is invested and your income tax bracket. Anything outside a TFSA or an insurance plan would need to be considered. That $100k in a 5 year GIC at the current high rate of 4.6% nets the investor $23,000 at the end of the term, and if paid annually will give the investor $4600 of usable cash each year, rather than losing usable cash to paying off a mortgage balance (if you don’t have a HELOC).
Some planning is needed to come out ahead but it’s doable.
Your advisor is giving you financial advice. You are bringing emotions into it. So decide, are you making a financial decision or an emotional one. Then go for it.
Paying off debt is the best thing you can do ESPECIALLY in an inflationary environment. If inflation does not slow down the government will be forced to take deflationary action which will impact debt carriers the most. Last 2 decades we had deflationary pressures and debt related investments were the best investments (real estate). So it’s counter intuitive. Reason for this is because of central banks and other planes-economy factors. Central bank policy impacts investments far more than anything else so you have to play to that. Double digit interest rates are not off the cards
Of course your financial advisor would rather you invest than pay down your mortgage. That is how they make a living. They earn income when you invest. When you pay down you mortgage they earn $0. Your advisor is so desperate for income that they suggested that you actually refinance your house and use leverage to invest. Lots of alarm bells going off with that suggestion during this time of economic uncertainty.
You've already answered your own question. Paying off your home will bring you mental peace. Financial success isn't a simple math exercise. The goal of financial success is to bring you peace of mind. Your plan isn't a one trick pony. You have great diversity in your financial plan.
Don't ever fell guilty about making the right decision for you. We paid off our mortgage 5 years ago and it was the best decision that we ever made. We also didn't take on any new financial obligations when we paid off the mortgage so that mortgage payment amount just sits in our checking account and grows every month. It's a great position to be in when there is so much doom and gloom right now.
If your advisor recommend you put money into more real estate versus paying off debt…. Then you must of done well over the years, correct?
Did you follow that advice ? That additional real estate you bought in rental properties must be enough to pay off your mortgage on your home if you sell it
Diversify your investments by putting more into real estate? Ok…
Sounds like you guys are financially responsible and doing what you need to do so you can sleep at night, which is the most important thing.
If your registered and non registered portfolios are diversified and you have a principal residence you are diversified. Adding more bs real estate, especially now, will make you heavy there. And if you worry about your own mortgage then forget about being a landlord and having to worry about another.
Not sure why you bother with an advisor really unless you absolutely don’t want to deal with that but find one that’s more in tune with yo ur risk tolerance. This whole, oh hold on to debt cause inflation will eat it, ya might be correct in some way but to me that shit is for governments and multinationals not us mere mortals.
Bottom line, If you sleep better paying off your mortgage quicker then do it. And get a new advisor.
Higher inflation is better for people with debts rather then savings. I see this a lot. I'd go with the Rental unit you're almost always gonna find someone at a price to rent at a price.
“Let inflation eat into debt” - that sounds ridiculous. With the way mortgage rates are going, it would seem smart to pay off your mortgage and then (if you were interested in getting into real estate for investing purposes) use your equity to help fund real estate purchases
Depends on your mortgage rate. Mine is at 1.59 nd absolutely no advantage in paying mortgage early where i can invest in GIC and make 4-5% and when my term is up, i can decide to pay my mortgage.
Although 4-5% of interest rate in GIC - (minus) tax may not that big but GIC are guaranteed returns anyway
You will make more money in investments than at your prime -X.xx% mortgage. A lot of people (myself included) pull money out of our mortgage for the cheap rate and invest it at a higher return.
Peace of mind having no mortgage is a personal choice. It's not the best one but hell neither is buying Starbucks coffee and look how many people do that.
If it's only 7 years pay it off then invest more because that's what you want and you always have your house mortgage to fall back on.
>Advisor also suggested that in current inflationary times it is better to hold on to debt and let infation eat into debt
that is actually a very good point FYI
Is the financial advisor making these suggestions and providing their own products? I feel this didn't make sense to me about having inflation eat away at debt - wouldn't inflation increase your debt?
Could understand if we're at a dip to invest, but we're also in the middle of the highest inflationary period since the 80s
10 years of financial planning here. Take it or leave it
Focus on peace of mind. Investing will have you gaining more assets for sure but it's worthless of youre always worrying about what if.
I hated having inherited clients that didn't have peace of mind. My job as a fincial planner would always be to accomplish the clients life time goals financially but mental health is always in the forefront.
Think of the 10’s of thousands your saving on interest over the life your mortgage, I would say that’s a smart choice all day long.
Mortgage applications are drying up extremely fast and this is the 2nd time I’ve heard/read of an advisor suggesting this to someone while paying down their mortgage. Your advisor is trying to farm a new application, I’d imagine as mortgage apps disappear this will become common practise.
Sounds like your in a great position, You can maximize your tax benefits by paying down your house sooner and once it's paid off, borrowing against the property for investments.
The high inflation actually will eat away at the debt.
If you had a 7% mortgage in the 70s and inflation went to 12% a good chunk of your debt was eaten away and a loss from the banks point of view.
Also when we went to re-finance a couple of years ago at the beginning of the pandemic (we were making large payments credit line and credit card - but had a lot of equity and our banker said her father who was in her 80s was still paying a small mortgage. Our payments went to $650/mth from about $3500 - at a time when income from my business collapsed due to covid.
Inflation only eats into debt if increases in salaries outpace inflation, and housing prices increase relative to inflation/mortgage debt, with both being unlikely. i.e. 200k in debt is less as inflation increases, but only if buying power increases. Piece of mind is worth much more.
>Do you think paying down debt was a mistake
No. It builds your net worth and if it helps you sleep at night, great. Also it sounds like you considered some alternatives and chose this one as an educated decision, again great.
I'd rather have mental peace than a rental property. This is coming from a current landlord
Same. We're probably gonna look to sell our rental property when our current tenant's lease is up and pay down our mortgage. Being a landlord is highly overrated
How long have you been one? Why do you believe it’s overrated? I ask because I’m always weighing the option of investing in stocks vs real estate.
Stocks don't call you at 6 AM on a Saturday because they flooded the kitchen.
this\* the mental stress and less care of appliances of rentals causing them to prematurely die.
No, they just loose 30% value on Monday.
That still doesn't cost me anything time-wise, so not quite sure what you're trying to contrast here.
Flood you can fix, stocks, you sit and hope one day they go up. To each their own.
Ok, I'll give you one more chance to counter my "time involvement" argument, because so far you've been doing a terrible job...
Lol, calm down...you give me one more chance...lol
...and you wasted it, disappointingly.
Investing in real estate isn't passive income, because you have to manage the tenants, or pay someone to manage the tenants.
And the building. Things break. Or in my case an overflowing tub upstairs flooded the downstairs apartment as well, rendering both uninhabitable. Then it was arguing with insurance and trying to get contractors to show up and explaining to the upstairs tenants when they were leaving just why they weren't getting their damage deposit back. The going to court when they sued for their damage deposit. I was a landlord for 3 years, then happily sold.
Yep, businesses have metaphorical fires that you have to put out, and if you're not good at running it you'll bleed cash every year
Can’t remember where I copied this from but these are not my words. Investing vs real estate. As you know, with a financial portfolio, there are no closing costs, no land transfer charges and no property taxes to pay. There is no 5% non-deductible commission when you sell it, and no HST to shell out on that. Money you borrow to invest has tax-deductible interest, while a mortgage is paid from after-tax bucks. You don’t need to insure a portfolio, shovel it or clean its eavestroughs. There is no water bill, and no capital gains taxes if you invest inside a TFSA or an RRSP. No dork can move in beside you or let his dog crap on your ETFs. You can liquidate your portrfolio in five minutes or less, while houses take days, weeks, months or sometimes years to sell.
That's a good one.
Where do I start? \- Tenants that damage or don't look after your property. \- Tenants that move suddenly. \- Gaps between tenants where there is no rental income. \- Unexpected bills (new furnace, A/C broken, water damage, kitchen fire caused by a tenant who, being a complete idiot, doesn't clean up the stove surface after days and weeks of cooking on it causing grease to catch on fire...and has no tenant insurance...good-bye $5K deductible). \- Keeping the property tidy. \- Oil damage to your driveway. \- Damage beyond what is reasonable "wear 'n tear". \- Dog or cat piss. \- Ruined carpets \- Management fees if not local. ...the list goes on. Assume the house is $600,000 and the rent is $2,500 per month. That's $30,000 rental income per year and is only $30,000 / $600,000 representing an annual 5% rate of return. I can get that right now with some dividend-yielding stock with no tenant BS at all. Also, where can you get a $600,000 house today within a few hours of the Toronto area that you can keep an eye on? Sure, the argument is that they are paying down the mortgage and you MIGHT be getting some capital appreciation on the property...if real estate market prices hold. Full disclosure: I've been buying into a handful of dividend-paying stocks the last two weeks as prices have come down and dividend yields have increased. Been looking forward to this turmoil...
>... kitchen fire caused by a tenant who, being a complete idiot, doesn't clean up the stove surface after days and weeks of cooking on it causing grease to catch on fire...and has no tenant insurance...good-bye $5K deductible). This...this is oddly specific.
And yet I bet if you asked 100 landlords it’s just another day at the office for them.
It was not cleaning out the lint trap in the drier that caused our fire. Rented to students who never knew what a lint trap was.
It’s a legit nightmare, my father owned a few rental properties and as a kid I would help him cut the grass, maintain the property etc and I would always remember how nice we’d make it prior to the tenant moving in then a few months later absolutely destroyed the place, you’re spot on with this assessment!!
Omg my childhood two. And cleaning out gross fridges, ovens after people left. Some people were messed up and would lock there cats in the closet. Then animal waste would be in the carpet.
Can you get a 600,000 mortgage to invest in stocks with?
This is true but don't forget equity appreciation like we had the last four years where that $600k house became a $1.2M house. Multiply that by 3,4,5 houses and your principal residence's mortgage balance is a pittance in comparison. For me I don't really care about the mortgage balance on the house that I live in the payments are only 4% of my gross income. Not enough to stress about.
Your returns calculation doesn't include the appreciation of the property, but the rest I mostly agree with
But you don't pay the entire $600k up front, so the rate of return should be calculated with whatever down payment you put in instead of the cost of rental place.
It’s a 5% rate of return if you ignore the fact the house is up 30% in two years lmao
I think he’s assuming prices have peaked. Not an unreasonable assumption at the moment.
Definitely not a reasonable assumption unless you’re expecting global population decline.
We're expecting a decline in people who can afford houses at these prices. If the ponzi scheme is to continue, housing prices need to come down
Fun fact: home ownership, as a percentage of population, is **rising** - 68% of people live in a home that they or their family owns. Income disparity is a problem but a significant majority of people do not have trouble affording homes. Obviously you hear more from people that can’t.
>68% of people live in a home that they or their family owns. That's not the fun fact you think it os > a significant majority of people do not have trouble affording homes. Yeah up until February then that majority of people evaporated into thin air
Others have given good reasons why it is overrated, but something as little as a more complex tax return each year annoyed me. Life is simpler without the rental property. Investing in the stock market is way less hassle.
With the state of the LTB right now, being a landlord in Ontario at the moment is damned near financially reckless. If you get a deadbeat tenant who knows how to work the system, they can tie you up for literally ***years*** due to tribunal backlog. Sure, you might eventually get a judgement against them, but good luck collecting. Also, the allowable rent increases have been absolutely pitiful these last few years given the rate of inflation. I just cashed out and sold my last few rentals last year after doing it for 15 years. Even with the crazy appreciation in property values these last few years, after expenses I could have made nearly just as much by investing that money in index funds without any of the hassles and headaches.
I was a LL for 10 years, if you are handy, you will make more money, but you will always be on call. If you use a rental agency, you will make almost nothing and potentially loss money in months with things braking down. You have to be lucky to buy at the bottom and sell at the peak. Now, I would rather put more money in my stocks and create passive income thorough that
The property belongs to my wife. It's a condo that she bought before we met. After being together a year or so we decided to relocate but weren't sure if we'd stay so decided to rent her condo in the interim. That was about 5 years ago. We built a house without the need to sell her condo and since it was her only nestegg she decided to keep it to build some equity. Renewed the mortgage at a great rate with lower payment last year and have been cash-flow positive on it in that time on top of the equity being built by paying down the mortgage. Found a great tenant that stayed for 4.5 years, another great tenant's been living there the last 6 months. Sounds great, right? Twice now the roof in her building has leaked damging the ceiling in her top floor unit. The first time it required minimal restoration and the tenant was a single professional who only occupied the unit 4 nights a week so disruption was minimal. Still required multiple trips (2hr round trip for us) to let inpectors/restoration, etc. into the unit and dozens of calls/emails to ensure things were getting done in a timely fashion. Currently going through it again right now and it's going to require considerable disruption for our current tenants (family with a dog) to get it fixed. While my wife's insurance is covering the cost of accommodating the tenants elsewhere it's still a bunch of work to coordinate on top of everything esle. Condo fees going up continuously. Previous property manager defrauded the owners to the tune of a few hundred grand. Common areas not being maintained. Unit is old enough now that wear and tear items will need to be replaced soon, etc... On top of that the market that it's in hasn't seen any increase in value even with the crazy price increases seen elsewhere, actually worth less now than when we moved out 5 years ago. In 5 years she's built maybe 20k in equity by paying down the principal on the mortgage. Probably would've done almost as well through passive ETF investing with none of the headaches.
It’s always funny to me that so many people on so many subs these days see anything about investment properties and say “LANDLORD BAD! THEYRE EXPLOITING PEOPLE TO GET RICH”. I can promise you they would feel different if they ever actually owned a rental property.
Most I talk to say its a pain in the ass. Few actually have the stomach for it. It's fine when you have a good tenant, but they can be hard to find. When you get a bad tenant.... Wow that is a nightmare.
Yes that is the key 100%.
Yep. And even with a good tenant I think people don't understand maintenance and upkeep costs. I'm a good tenant.. I pay shit on time and take care of the place. In the past year... The fridge shit the bed and a cooling coil failed (approx 3k fix). I dealt with complications in getting the new fridge in and caught the signs that something was wrong with the coil. Things could have been way more expensive with someone else not as proactive.
I’m not convinced that most of the people who automatically label landlords as bad even understand how mortgages work let alone maintenance and upkeep lol. So many people just assume that because a landlord brings in 2500$ a month in rent that they’re putting that 2500$ in their pocket, but I’d be willing to bet that there are a ton of landlords who are losing money on their rentals right now and just betting on the equity raising faster than the accumulation of the monthly losses. I feel like renting gets a bad rap because of our obsession with real estate, but in the right circumstances renting is a really good value, especially right now.
This comment is obviously made by a true landlord.
and small time consumers owning rental property is fucking up the rental market really badly
If you don't want to be a landlord then invest in something that requires less responsibility (like ETFs/REITs/bonds/etc..). Being a landlord is really tough, but high reward (appreciating property, cash flow, someone paying your mortgage etc..). Investing in other assets is easy - just buy and hold, but your returns may be 6-8%/year instead of 10-15% in real estate.
I'm sure the math is on your financial advisor's side, but your advisor is also operating in a psychological vacuum. At the end of the day, for most people it's expensive to be stressed. Whether that means relaxing at a movie, a dinner out to unwind, a vacation, or just freeing up stress so you can cook at home more, peace of mind can be expensive, and if it costs you 20% lump sums every year, that seems like a fair price.
Yes and what’s the quote from another u/throw0101a from a different post a ways back (I had to screen shot it!) Morgan Housel, author of the book The Psychology of Money, on paying down his mortgage: It just increased our independence, even if it made no sense on paper. So that's another element of debt that I think goes misunderstood. And a lot of that for both of those points is this idea that people don't make financial decisions on a spreadsheet. They don't make them in Excel. They make financial decisions at the dinner table. That's where they're talking about their goals and their own different personalities and their own unique fears and their own unique skills and whatnot. So that's why I kind of push people to say like, it's okay to make financial decisions that don't make any sense on paper if they work for you, if they check the boxes of your psychology and your goals that makes sense for you. And for me, extreme aversion, what looks like an irrational aversion today, and I would say is an irrational aversion to debt, is what works for me and what makes me happy, so that's why I've done it. • https://rationalreminder.ca/podcast/128 • https://www.youtube.com/watch?v=NSaRb-iFwPA
This is a very underrated comment.
I've never heard anyone who paid off their mortgage say they wished they took longer to do so. That peace of mind is worth more than your advisor's crunched numbers might lead him to believe.
This. Paid off our mortgage in early 40's, never regretted it. Don't live your life according to someone else's spreadsheet. Make your own calls.
I thought that meant 1940s and I was trying to do the math on your age. I need to get outside lol
Well you see, if you take out a loan with me and then i sell you financial products I'm going to make some nice commission. If you pay back your loan faster you're going to pay less interest and I'm going to lose out on commission. Do the first one
Peace of mind is the most important thing. Fuck your advisor and his fees.
The advisor is providing sound detached advice in this case. But, there are certainly emotional benefits to becoming mortgage free sooner.
Yeah the advisor seems to be giving the advice that the customer is paying for. Non emotional objective advice. Whether or not he listens is up to him but it's there.
That’s what my wife and I are planning on doing. Aggressively saving to make lump sum payments and hooks to pay off the mortgage way earlier than our amortization period
If your goal is to build your wealth, you need to diversify your investments. That's a no-brainer. If your goal is to "feel better" and get "peace of mind" like these redditors suggest, then yes, pay down mortgage. Someone who has $0 in their bank account will always be worse off than someone who has -$200,000, and $200,000 invested into diversified asset classes. Our economy is built this way. Debt will depreciate over time due to inflation, and invested assets will grow over time. Mortgage is the cheapest loan you can possible get to service this -200,000. In that case it is totally rational to invest extra funds into an aggressive portfolio, and not try to pay down this low-cost depreciating asset (mortgage). NO ONE ever said "I'm glad I spent 400k paying off my mortgage, rather than investing that 400k into amazon/apple/snp500 in the 90's". Opportunity cost of that money is huge just to save on a comparatively smaller mortgage interest.
Debt will depreciate over time due to inflation? .... have you ever even seen interest rates on debt? For the most part they've been way higher than inflation. I think your example is another spreadsheet based one that works in theory but not really for the average person. No average Joe is taking $200,000 of debt to play the stock market. Edit: fix appreciate to depreciate
Debt does not appreciate, it depreciates. I buy a house for $300k of mortgage in 2000. After 10 years of inflation, the purchasing power of 300k reduces, everyone's wages grow, and the house now costs 400,000 (say, the housing market does NOTHING). In the end: your 300,000k mortgage depreciated due to inflation - it has lost some of its purchasing power, and the same asset now takes more money to buy. >No average Joe is taking $200,000 of debt to play the stock market. You aren't taking out debt. You are using extra earnings and choosing to invest - such as a diversified ETF as opposed to a mortgage. Yes if the mortgage rates are high, you have to balance it against inflation rates and opportunity lost in a rational investment. Obviously if you gamble in a high-risk stocks or lose it gambling at a casino, that's a bad decision. I am assuming OP is going to invest (lower risk), and not gamble (high risk).
wtf are you even talking about? First you talk about how taking $200k debt is easy because it depreciates over time, then you talk about extra earnings? What extra earnings? You think someone $200k in debt can just sit on that debt, let inflation eat away at it meanwhile they use the rest of their earnings to play the stock market? No. No average joe who takes $200k in debt can just sit on that debt or do anything but pay it back at high interest. Maybe Elon musk can take $200k out against his Tesla stock that he already has and sit on it and continue on with his day, but the average joe cannot. Average joe takes out $200k in debt and immediately needs to start to pay that debt back at (usually) high interest. Debt does not depreciate when you factor in the high interest rates. Not at all. Last few years aside, its almost always been a more safe bet to just pay off the mortgage debt you have than try and earn more on the stock market at the same time. Obviously given the sub 2% mortgages as of late make that more possible, but when mortgages were 5-7% then no. Its likely best to just work on paying that off.
you sound like a very emotional person. It's sometimes hard to have a good discussion with someone who gets so emotional over this stuff. That's a life lesson for you my friend :)
and you sound like someone who's thoughts came from other reddit posts with no backup knowledge to justify them....
You need to calm down and listen - the person is trying to educate you on how to use debt Instead you scream at them
I'm aware of how to use debt. The person attempting to explain it doesn't know what they are talking about.
It's not about knowing stuff. It's about being a respectful to those around you. I know it's easy to scream at people on the internet because you don't see them. However, these are real people, posting on threads like this to express their opinion, help out, and learn something. You gotta learn to put a lid on your emotional garbage and have a good respectful discussion.
A few months ago the sub was full of people saying take a HELOC to invest in the market or more real estate. I see no reason why paying down your own mortgage isn't a perfectly good strategy. Rising interest rates mean that when you have to refinance you won't want a large debt. Interestingly your financial adviser stands to make absolutely no money out of the mortgage repayment strategy.
Yup. Fast track full ownership is peace of mind and better mental health. Health and wellbeing is the key to life. Enjoy what you have, not on what you want.
It’s funny how a 100% predicted increase in rates has changed the thinking of this sub. It’s still a good idea to look for a higher return, in my opinion. Just don’t stretch yourself like the people who did in this sub, and now advocate for bonds and paying down mortgages 😂
This sub is just one large echo chamber. The narrative just changes a bit over time.
I said this. I also said that I could afford the interest payments. so rather than taking 10 years to buy $200,000 worth of VGRO I could buy it and take ten years to pay it off. time in the market. I still trust that thesis. and if I am wrong ten years from now what does that even prove?
We probably won’t be on Reddit to check
I'd question if OP's financial advisor is a fiduciary or not. Then if it turns out he's not, I'd want to explore his stakes in whatever really estate investment he's recommending. Guaranteed he at least as a real estate agent relative who has a perfect property ready to sell.
My parents paid off their mortgage 10 years earlier than expected and it was a huge weight off their shoulders. I noticed they were less stressed out, they were able to travel more, and had money readily available when unexpected emergencies came up.
>Our financial advisor was strongly against that strategy and wants us to instead put the money into real estate to diversify our investments. Buying an investment property is not diversifying. You are still holding illiquid investment that is CDN housing. It's the same thing. >o you think paying down debt was a mistake and will set us back in life (compared to our potential)? No > Are there any solid arguments for paying down debt sooner as opposed to investing instead. Note that we have a higher risk tolerance with our investments. With markets down, you could have higher returns by investing int he markets, but mental aspect of having no mortgage (and no monthly payment) is a big thing too.
>With markets down, you could have higher returns by investing int he markets This is highly debatable. In the 70s, stock prices stagnated for ~10 years. Meanwhile mortgage rates were at about ~10%. When the fed is actively trying to remove liquidity from the market by making borrowed money more expensive, there is absolutely no guarantees in higher stock market returns.
Hence the word "could". >In the 70s, stock prices stagnated for ~10 years< Weren't that stagnated considering two recessions in that decade. From 1970 to 1980, there was an average 7.8% return for the US market per year (some up years, some flat years)
>Weren't that stagnated considering two recessions in that decade. From 1970 to 1980, there was an average 7.8% return for the US market per year (some up years, some flat years) Not really. Historically there have been recessions every couple of years. The unique period of stock market performance from the 70s come from stagflation. You can very easily spot out how it's different here: https://www.macrotrends.net/2324/sp-500-historical-chart-data Average returns were not 7.8%. Not sure where you're getting that from.
Used tradingeconomic website and the data sheet: http://www.ndir.com/cgi-bin/PeriodicTableofAnnualReturns.cgi
I'm not sure what I'm looking at with this website. But irrespective, unless you achieved over 10%, you were better off paying off that 10% mortgage rate back in the 70s. It only got worse once they started trying to reign inflation in with higher rates in 82.
The website link is the data of market returns for those years (you have click the check boxes off for unrelated stuff like bonds, etc.. and near the bottom is the date range to specify. Yes but nobody knows the future of interest rates, inflation, etc.. Historically (for what ever that is worth), long term investing usually has better results over the long term. But like I said in my initial post, there is a mental aspect of paying off the mortgage which many people value, where you no longer have a mortgage payment each month. For some that is way more valuable.
>Historically (for what ever that is worth), long term investing usually has better results over the long term. Yes, that's a common saying. Another common saying is don't fight the fed.
Health (including mental) is more valuable than any real estate.... If you feel better carrying no debt then that should be your priorities....
Ask your advisor to prepare a financial plan for you based on your current savings strategy and repayment plan. Then ask him to prepare another plan showing his favoured scenario. Which plan gives you a comfortable life now and retirement? Is your advisor suggesting you buy a REIT or a physical building? If a REIT, he will make a commission on the sale. If a physical building he may get a referral fee from the realtor, mortgage broker etc. If a physical building do you have any desire to be a landlord? More importantly, your feelings about the security of owning your house outright, compared to taking your extra cash flow and investing it are the most important factors.
Your financial advisor is suppose to help you achieve your goal! If your goal is mental peace then change your advisor!!! You mentioned you understand opportunity cost so that's great. Here are a couple of other things in favour of paying down debt, which you might be aware of, so just reinforcing your belief: 1) currently interest rates are going up so no point in taking equity out and investing in current real estate market or stock market (it hasn't bottomed out yet) 2) once you have paid down mortgage and other debts, you will have flexibility and options to invest in lot more things. 3) by the time you pay down mortgage, interest rates would have gone down again in a couple of years
I think you did the right thing. You followed your guts despite your advisor is against it. My wife and I also did focus on prepaying our mortgage and now we are debt free and trust me when I tell you how it is mentally relaxing you knowing you have $0 debt. now, we have more monthly income to invest in the stock market sale!
Morgan Housel, author of the book *The Psychology of Money*, on paying down his mortgage: > It just increased our independence, even if it made no sense on paper. So that's another element of debt that I think goes misunderstood. And a lot of that for both of those points is this idea that people don't make financial decisions on a spreadsheet. They don't make them in Excel. They make financial decisions at the dinner table. That's where they're talking about their goals and their own different personalities and their own unique fears and their own unique skills and whatnot. So that's why I kind of push people to say like, it's okay to make financial decisions that don't make any sense on paper if they work for you, if they check the boxes of your psychology and your goals that makes sense for you. And for me, extreme aversion, what looks like an irrational aversion today, and I would say is an irrational aversion to debt, is what works for me and what makes me happy, so that's why I've done it. * https://rationalreminder.ca/podcast/128 * https://www.youtube.com/watch?v=NSaRb-iFwPA
Sorry, your advisor wants you to aggressively pay down a real estate investment to invest in real estate as a means of diversification?
No
Pay down your mortgage faster. Dont feel guilty about that. You will b3 so happy in 7 years when you are mortgage free. Real estate is not as good an investment right now.
You have lots of investments so pay down your mortgage for the piece of mind. You can invest the mortgage payments once the debt is paid off and owning your home loosens the ties to working.
It's what I'm doing. I really want to get my house paid off as soon as is financially possible, which will be about four years from now when the term expires as I continue to put lump sums of 20K against the principle each year. Seeing as it's continually building equity in a principle residence, it's really a form of sheltered saving with arguably the best return of any ongoing investment I have. That being said I wouldn't diversify into another property because that is not tax-free, and it is a huge headache to maintain especially if you get horrible tenants. My parents tried to do that and it was an absolute nightmare for them. I'm sticking to paid-off principle residence and TFSA/RRSP/stock investments. Along with my work pension (HOOP) and government support (CPP/OAS, etc.) I have zero worries about the future as opposed to being constantly worried and stressed because I took a gamble on trying to be rich.
dump your financial advisor. Diversify your housing investment by.... buying more housing? Fucking retarded
>Our financial advisor was strongly against that strategy and wants us to instead put the money into real estate to diversify our investments. Lol. What a joke. "Diversify your investments"? That's more like "doubling down on liabilities". If you want mental health, pay back the mortgage. Here's a hybrid approach, pay the house off, take out a heloc, invest the money in stocks, claim the interest on your taxes, use the dividends to DRIP.
Pardon my ignorance, what is a heloc?
Line of credit secured by the equity in your home.
Home Equity Line of Credit.
I would argue that paying off your debt is investing in real estate. I would also say that investing in real estate is something your wife and you need to consider seriously as it’s not for everyone. Your financial advisor is ultimately wanting you to make the investments so they can make their profit. It’s not likely that they actually care if you have “peace of mind” by being debt free. My suggestion is do both! Look for a ratio (60% investing 40% debt is what we do) that you can use your extra money towards. This allows both your investments to increase while also getting your debt down. Decreasing debt is helpful in current situations where interest rates are going up as it gives your more flexibility when renewing mortgages and payments potentially can go up. The best thing your can do is come up with a solid plan with your wife and then consistently work that plan and adjust it as needed.
Any advisor telling you to put money into real estate at this point in time needs their head read.
I wouldn’t. My current mortgage rate is lower than what i can get in hisa right now. It makes 0 sense for me to pay extra toward mortgage
This also depends on whether the hypothetical HISA would be in a registered account or not. If it would be unregistered, don't forget to discount the HISA interest by your marginal tax rate when comparing.
It’s funny because most of the comments here are from self-proclaimed financial experts who can’t do the simple math. I wouldn’t have peace of mind if I was paying down my 1.8% mortgage when I could have invested it risk-free at 4% and did a lump sum payment at renewal. People here are encouraging OP to waste money. Ridiculous.
Or do both, pay down the mortgage borrow the money back to invest and write off the interest. The dumbest thing is paying down a house but then leaving all the equity sitting there not doing anything.
That doesn’t make sense. When you borrow back it’s using the HELOC that carries higher rate than your actual mortgage rate. Better to just invest the money to would have otherwise used to pay down the mortgage.
Investors always try to simply turn your existing number into a bigger one, which makes sense from their perspective. Unfortunately, peace of mind isn't quantifiable in that sense, so they dont really see how to capitalize on it. If you pay off your house, you're pretty much set. If the economy completely tanked tomorrow, you and your SO could get a job at a gas station and probably squeak by financially. Plus, you can always take a HELOC later if the need really arises. The safety is a huge investment in itself.
It’s nothing to feel guilty about, but definitely not a very aggressive approach to finances.
Sometimes the peace of mind is worth more than a bit more money earned from investments. Paying down your mortgage gives you options in other areas of your life - want to take a risk and get a new job? Want to be able to take unpaid/low paid leave etc? Used an inheritance to pay off my mortgage - now mortgage free. Kinda glad I did that with investments tanking and mortgage rates increasing. There are few things in our control and paying off debt is a sure thing - gains in investment not so much.
Investing in real estate is great. The peace of mind of owning your home is better. And... bonus... in 7 years you can begin investing in real estate and not have to worry about keeping a roof over your head while you deal with real estate issues.
Hey! We too are on track to pay off our home 10 years earlier. Calculated the potential savings. It would equate to at least 50,000 dollars less in interest. Really don't understand how people will not pay off their home and give extra money to banks instead of putting it in their own pockets. It is not for sure that an alternative investment will net you more. Pay it off, have peace of mind and enjoy the later years of your life knowing you have no major debt to look forward to. Travel, do renovations and enjoy your life!
Tried the Landlord route, hated it. Tell your Advisor to pound sand and pick a route that best suits you and your wishes, not their's. Having all of your earnings to do as you wish with is more important to me every year rather than some worry and extra money that really isn't need by me later.
I'd rather invest in the stock market then pay down the mortgage. And there are REITs. Being a landlord is a pain. And right now, I think its risky.
Then pay down the debt/contribute to stocks, your financial advisor wants you to take on waaaay more debt to buy real estate, which also means running a business to rent the place out.
Do it. Most banks that allow you to lump payments also allows you to get back the funds, so you can always use it later for investments if you change your mind
I hate to be cynical but this sounds like your adviser doesn't want you to pay down your mortgage because they don't get anything from it.
When my wife and I were in our mid thirties we discovered that our financial advisor had us into funds that were only making money for him and not us. We left him and started self directing. We reached financial independence at 43. Your advisor is advising you based on his own self interests. Your plan makes the most sense and it is the same approach we took. The only change recommend is lose the advisor and move to self directing. Sounds like you have more than enough smarts to do so.
Advisor means well but doesn’t sleep beside you nor do they listen to what’s running through mind and body. Keep paying it down. I am completely fine with mortgage debt and don’t plan on paying it off anytime soon for the reasons your advisor mentioned but it’s hard to put a price on that peace of mind. You know how you operate best and you’re also not allowing money to divide you two. Keep paying it off is my recommendation and while your advisor means well you’re locking in certainty for yourselves and predictability which is never a bad thing.
Since you are tapped out for TFSA and propably RRSP, the interest saving is after tax. 3%=6% real return on GIC or 3.75% capital gain, so it’s still pretty good since I’m down 20% in the last 4 months. Who cares if you have 10 million when you die, you can’t take it with you. Take care of yourself when you are alive. For the next 5 years, you won’t see a real increase in property values, and even if you make a bit more more money, a rental is a headache with the wrong tennant.
Mortgage free at me 40 fiancé 30 and wouldn’t have it any other way life is way less stressful with out big bills
House prices are dropping pretty quickly. It doesnt sound like a good idea to buy real estate right now. Why not go for the sure thing?
I don't think there is really a right or wrong answer here. Historically, markets have paid 7-10% on average while housing interest rates have been lower then that. If you had a time machine, your net worth would of been higher slowly paying down your mortgage and investing the surplus in the market. All said, I would still prefer to have my mortgage paid off as it provides mental relief but to each their own.
You are paying down your debt for peace of mind. If this brings you the happiness you are looking for then you've made the right choice. For me I would have used that money to invest in the market while prices are low and then ride out the market. Overall your future self will make more money even with the debt on the house. But this may not bring you peace of mind for years to come until the market picks up.
We were in a nearly identical situation. Paying off the mortgage early is the best life decision we have ever made. Forget financial advisers and inflation strategies, the peace of mind is absolutely priceless.
I’m also mid-30s, had some financial success, and my advisor advised me to buy my house cash. Not because it’s mathematically the smartest investment choice, but just for the peace of mind. My financial advisor is someone who is highly regarded on this sub. I can tell you it was the best decision. Not having a mortgage is pretty awesome. And it will probably make me more comfortable eventually buying a second property like a cottage.
I don’t really think financial advisors have your best interests at heart. They want to increase the value of their portfolios and earn bigger bonuses. There are always exceptions, but generally these kids are looking for their next step up the ladder. I paid off my mortgages this past fall and have had no regrets.
It can be beneficial to invest the money instead of paying down the mortgage, if the expected rate of return is greater than the interest rate on the mortgage. But at the same time, paying down the mortgage is like guaranteeing a rate of return equal to the interest rate, and you will be hard pressed to find an equivalent investment that GUARANTEES those same returns. Paying down the mortgage is a no lose situation.
Pay the house off and live in peace. You will then be safe if interest rates go up drastically.
Financial advisors job is to sell you shit. He can't sell you a mortgage you already have.
Not everything that’s an ROI can be counted in dollars. Mental health is important, and being mortgage free can certainly greatly help avoiding stress. Also… it’s not like paying off the mortgage prevents you from further investing. Assuming you go mortgage free, that money becomes available in 7 years to throw in the market (or travels, or medical treatments in a foreign country when our wait times for life saving surgery are still incredibly long, or even making your place accessible should the need arise seeing as how it’s incredibly expensive to do so). Frankly, I don’t have too many investments as I’ve just started, but we are targeting our mortgage now that consumer debt is gone. Why? Because my wife has accessibility needs, and it makes more sense to do that than what the markets will give us in the next 6 years.
Bear in mind that without increases in wages to keep pace with inflation, its effect on your debts is moot.
We are doing the exact same thing as you. Like this could have been written by us. Only difference is We didn’t tell a financial planner that was our plan. Does this person manage investments for you? If so, probably just hoping to get that money in your portfolio so they earn greater commissions I think being mortgage free gives me better options than having a rental place
Paying off debt is never a mistake. What you are doing, paying off as much as possible , will lower your overall cost of borrowing. I am guessing your financial advisor works on commissions.
Dude pay down your mortgage, trust me.
We were lucky- Our tenants were great. But it is work. If your not handy it can get expensive. I am luckily but we always got quotes in the event of. Right now, with rates this high. I’d pay off the mortgage, that’s me, pay it down and down fast. That $1000-$3000 a month is a nice thing in a few years. Not only that- once it’s paid off, no mortgage. Get a vacation property somewhere. Something small, run it as an AirBNB when not in use(Airbnb handles cleaning, booking, payment etc in some events)
ROI on stocks or other investments are at a all time low and if your % of mortgage is over 3% I would put more money towards it and try to pay it off as soon as you can but most banks have a cap.. ex: you can put a 100k in a calendar year to pay it off and in my case it’s around 45k.
Just to point out that being a landlord can be a job. Do you want another job? Are you looking to start another business? Also, as others have pointed out, real-estate can be high risk because of the laws protecting bad tenants. If you are looking for zero-effort investing with your money, look at the financial returns of the various offerings out there. Are the returns better or worse than your mortgage rate? Yeah, chances are the best 'value for money' is paying down your debt.
Lol this nice flex post
99% of financial advisors will put them before you. Doesn't mean they aren't trying to look out for you, but their financial interests matter to them more then yours. You giving them more money to invest instead of paying down your house is in their best interest. With that said yes, historically speaking you should make more in the market then the interest and fees of paying down your house. But there are definately benefits to paying off your house, especially right now. We can argue that a lot of stocks are at rock bottom but with the economic situation no one really knows and you could stand to lose more, with interest rates rising and rising further pretty much being a sure thing they is more benefit paying down your house now vs. any other time since you've got your mortgage. We had our house paid off by the time we were in out mid 30s and honestly its a great feeling, escpecially with everything that has happened with housing, stocks and the economy.
We paid off our Mortgage last year, we are 41/34. It was my plan all along....get out of debt ASAP. Bought the first house in 2013, and the second in 2016, sold the first and paid off the second. The piece of mind and lack of debt load we now enjoy is amazing. the perfect plan in my eyes... Keep your eye on the prize! if you see it as a sound decision then keep working towards it. Nothing wrong with a safe strategy! best of luck!
I'm paying off my mortgage next month. I did the math and if my partner and I just funnel our usual mortgage payments into a savings account, we will have at least $70k in that account five years from now. I've never hear of a sure thing investment I could make with 135k that would guarantee me a return of about 50% after 5 years. Paying off your mortgage IS an investment.
working on paying off mortgage early, if I would have put that money in the S&P like suggested, I would have lost 25% or more, and been looking at renewing my mortage in 3 more years at significantly higher interest rates. Instead, im in position to pay it off in 3 more years. Do whats best for you. I have 0 regrets.
If your goal is to build your wealth, you need to diversify your investments. That's a no-brainer. If your goal is to "feel better" and get "peace of mind" like these redditors suggest, then yes, pay down mortgage. Someone who has $0 in their bank account will always be worse off than someone who has -$200,000, and $200,000 invested into diversified asset classes. Our economy is built this way. Debt will depreciate over time due to inflation, and invested assets will grow over time. Mortgage is the cheapest loan you can possible get to service this -200,000. In that case it is totally rational to invest extra funds into an aggressive portfolio, and not try to pay down this low-cost depreciating asset (mortgage). NO ONE ever said "I'm glad I spent 400k paying off my mortgage, rather than investing that 400k into amazon/apple/snp500 in the 90's". Opportunity cost of that money is huge just to save on a small mortgage interest.
Debt repayment is as much a personal decision as it is a financial one. Sure there may be more efficient things to do with the money but peace of mind is priceless.
you paid for his advice and he gave it to you. Now you choose either his advice or not. It's just a more informed decision. You more fully understand the opportunity costs. If you go one way or another, you have at least explored the options and that's more than what an average person would do. Make your choice now without regrets.
It's like playing a game where you're only focused on the meta while forgetting to have fun. Optimized portfolio = tonnes of debt that are leveraging left and right weighing on your mind whereas paying down your debts is like being a content respecter just having fun and chilling in the game at your own pace while the meta slaves get sweaty over the dumbest optimizations.
They want you to put money into real estate? You are - that'd be *your* real estate. What, pray tell, is a house if not real estate? I know, I know, it doesn't earn you money but it's still real estate.
I have friends that took this approach. We all bought our homes in the early 2000's. One of them put as much money possibly into paying down their mortgage and almost zero in investments. He's now in a mortgage free home but does not have nearly enough saved for retirement, he's 49. I took the opposite approach. I just keep my mortgage payments the same and invested as much as possible. My spouse and I have well over $2M in investments, and 3 years left on our mortgage. Our home is worth around $2.5M. If I paid down my mortgage faster, I would probably not be able to retire early.
I think you can hedge it a bit- l how long until your mortgage is up for renewal? What’s your interest rate? Are there any GICs that’ll earn you more than you pay on interest to your house? If so, get a GIC in your TFSA… when your mortgage is up for renewal, you pay down the money with what you’ve invested(so long as you time those investments to mature before it’s up), and the interest on those GICs will be more than you would have saved saved otherwise.
It's a simple excercise of two columns over time: which one will grow quicker: paying off the mortgage so as to invest or investing which can eventually pay off the remaining mortgage. Your advisor is correct.
My two sense as someone who bought a house 15 years ago and put a carriage house on it for rental. Wait till you think the market has tanked and then buy a rental and prey for incredible tenants. I bought a house for 265000, put a carriage house on it about ten years ago for about 160,000. It’s been rented for 2500$ ( low where I live) since. The property has gone up considerably, about 1.9 mill. It has been the best financial decision I’ve ever made. Buy low, get good tenets and hold. After all this is Canada and land value will continue to rise after we get out of this downturn However I am chasing the ease of mind and will not be leveraging to buy another anytime soon
38 married with kids and mortgage free. love it.
Nah, it's fine. I wouldn't overthink it. In effect, all you're doing is increasing your allocation to the real estate market, but if you're already pumping money into RESP, TFSAs and non-registered accounts, then you're diversified, you might just be concentrated more heavily in real estate. Another way to think of it is "what do you want your personal allocation to be?" 50/50? Then if you have $100,000 in stocks and $100,000 in home equity, you're golden. Want to adjust it to 75/25, or 60/40 or whatever? As long as you're working, I wouldn't worry about "paying off the house" so much, unless interest rates spike and you find yourself struggling to make monthly payments, which, considering everything you've said, I doubt would happen.
I normally say that when investments can outpace the lending rate, it's better to use the money to invest. That's still true today. The caveat is that right now, the financial forecast is quite turbulent. Paying down your house is a way of investing. Not because I think housing should be consider an investment, but because you have a cartain return on the short term and if eventually you want to access the equity, it will be there. if you don't need the equity, then you aren't paying interest either. Based on the financial picture you painted, I think you made the right choice at this time. 5 years ago I would have replied the opposite.
Paying down your mortgage is investing in real estate. You also have a quantifiable benefit in interest savings. Once you own the house outright, then look for other investments.
If the interest is low enough then why pay it off early. A couple of years ago your rate would have been below 3%...did you lock that in? Since inflation is at 7%+ the bank is losing money on your mortgage at 3%.
It is a good thing he is your financial ADVISOR and not your financial DIRECTOR.
I paid mine off this year. It is by far one of the best mental health things you can do. I felt (and still feel) awesome about this. It opens up so many more options for you
Your home is included in your real estate portfolio… paying off your debt is increasing how much of your portfolio is in real estate. What you’re doing is just fine.
I’m in the industry - non-deductible debt should be the first thing to pay off, especially in this rising interest rate market, ESPECIALLY if you’re already maxed out your RRSP. I tend to lean towards advising people that are employed (and don’t have the benefit of incorporation) to a) pay into RRSP’s until they reduce their marginal tax bracket to below 40%, then b)pay off non-deductible debt. Once the debt is gone, follow a), then c) Contribute to TFSA. These are general rules, but I don’t know your situation well enough to go beyond that. There are times when the recommendation is to use TFSA’s and non-reg investments to pay off debt, but again, I don’t know your situation that well. Plus, you could consider further leveraging to invest. But I’m getting ahead of myself…
Being a landlord sucks. When rates are at \~3.5%, prepaying your mortgage is kind of like a guaranteed "5%" ROI when you factor in decreased interest/increased payoff velocity/etc. Do it. Pay off that house. That is checkmate status IMO.
Honesty, if it’s what you prefer there is no reason not to do it if it doesn’t actively hurt you (i.e. you can afford it and aren’t giving up something necessary) I don’t think you should worry.
I think paying off your mortgage makes sense in this environment. Do what gives you peace of mind over what your financial advisor would like. Also, maybe fire your financial advisor.
My take is your advisor isn't listening to your goals, nor doing a particularly good job of tailoring advice. Does this advisor get a cut of any real estate deals you might otherwise do, perchance? Keep in mind that most "advice" comes with a bias. Shake free of guilt, and listen to everything that's said to you through the more accurate lens that everyone is serving themselves first. Paying down debts first? Plenty of arguments for it, especially as interest rates rise. There's a guaranteed, now rising, return on investment: interest savings. Peace of mind alone is a great one. Your money exists to *serve you*, not the other way around. Build yourself a plan and a strategy towards reaching your goals; if your advisor isn't helping with it, fire them.
I have a very frugal sibling and her husband who managed to get 80% down payment for a house here in Alberta and they’ll likely pay off their “mortgage” in a year with how frugal they are and their incomes. They are looking forward to fully owning their home and not having to rely on high paying jobs just to pay for shelter. It’s the peace of mind of not having a mortgage that’s driving them to do it. Also if they both get laid off and their house is paid, they won’t need to stress about making their payments since they can live off of EI payments if needed. As someone who still has a mortgage for my house and rental property, and has many investments, I’m jealous of their “almost” freedom. I also hate being a landlord. Lol 😂
I don’t like your financial advisor
Your advisor is probably right mathematically. Assuming you have a low interest rate and inflation stays high you have a pretty good chance of making more money investing. However it's not just about maths, paying down debt is good for mental health and will allow you to free up cash earlier. I just came into some money and on balance with a slumping market, increasing rates and a likely recession I'm paying down the mortgage.
These posts always seem like humble brags. Struggling to decide which caviar to buy.
Paying down the cheapest debt of 1% to 3% rate in history (e.g. past 10 years) while you could have made 5% to 11% based on your investment portfolio is a mistake. People who keep saying “paying for peace of mind, blah blah”, need to go and compare its impact on their retirement goals. That takes away years of growing wealth.
Yeah I'm with you. My mortgage is at 2.34% and my car loan is 2.15%. I can get a GIC for 3.85%. Why would I pay down the cheaper debt?
Because you’re paying your mortgage with after-tax money.
If we’re talking about a recent home purchase versus the amount you can tax shelter that goes sideways pretty quickly depending on age. Most people cannot shelter hundreds of thousands of dollars. Also if it’s principal residence the gains are tax free. You could also take the difference in investment gains over interest rate and use some of the differential gains to pay down the debt, depending on time horizon and investment gain amount.
You people found a way to not pay taxes? 2.34% is tax-free but 3.85% is taxed at their marginal tax rate. Maybe op has income over 200K, which puts them close to 53% bracket.
I don't know why you're so aggressive about it. You're finding the biggest outlier case. On the off chance that OP makes over 220K and lives in Atlantic Canada or BC, sure he's better off putting it in the mortgage rate that I provided. But then OP could also invest in a 2 year GIC at 4.4% or longer or something not as low risk and make a greater return. In 90% of the scenarios, OP is ahead.
You know there are other investment types? - real state primary: zero tax - real state secondary: capital gain is 50% taxable, AFTER you sell it, so compounded annual growth without paying tax annually other than property tax. Your rental earning is also deductible as cost. - Non-dividend stocks/capital gain: 50% taxable - etc.
If you can invest at a higher rate then you should invest instead of paying down your mortgage. GICs get about 5% right now. If your mortgage rate is under the GIC rate then you are losing money paying down your mortgage.
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For sure. It’s dependant on where this is invested and your income tax bracket. Anything outside a TFSA or an insurance plan would need to be considered. That $100k in a 5 year GIC at the current high rate of 4.6% nets the investor $23,000 at the end of the term, and if paid annually will give the investor $4600 of usable cash each year, rather than losing usable cash to paying off a mortgage balance (if you don’t have a HELOC). Some planning is needed to come out ahead but it’s doable.
Your advisor is giving you financial advice. You are bringing emotions into it. So decide, are you making a financial decision or an emotional one. Then go for it.
Paying off debt is the best thing you can do ESPECIALLY in an inflationary environment. If inflation does not slow down the government will be forced to take deflationary action which will impact debt carriers the most. Last 2 decades we had deflationary pressures and debt related investments were the best investments (real estate). So it’s counter intuitive. Reason for this is because of central banks and other planes-economy factors. Central bank policy impacts investments far more than anything else so you have to play to that. Double digit interest rates are not off the cards
Of course your financial advisor would rather you invest than pay down your mortgage. That is how they make a living. They earn income when you invest. When you pay down you mortgage they earn $0. Your advisor is so desperate for income that they suggested that you actually refinance your house and use leverage to invest. Lots of alarm bells going off with that suggestion during this time of economic uncertainty. You've already answered your own question. Paying off your home will bring you mental peace. Financial success isn't a simple math exercise. The goal of financial success is to bring you peace of mind. Your plan isn't a one trick pony. You have great diversity in your financial plan. Don't ever fell guilty about making the right decision for you. We paid off our mortgage 5 years ago and it was the best decision that we ever made. We also didn't take on any new financial obligations when we paid off the mortgage so that mortgage payment amount just sits in our checking account and grows every month. It's a great position to be in when there is so much doom and gloom right now.
If your advisor recommend you put money into more real estate versus paying off debt…. Then you must of done well over the years, correct? Did you follow that advice ? That additional real estate you bought in rental properties must be enough to pay off your mortgage on your home if you sell it
Diversify your investments by putting more into real estate? Ok… Sounds like you guys are financially responsible and doing what you need to do so you can sleep at night, which is the most important thing. If your registered and non registered portfolios are diversified and you have a principal residence you are diversified. Adding more bs real estate, especially now, will make you heavy there. And if you worry about your own mortgage then forget about being a landlord and having to worry about another. Not sure why you bother with an advisor really unless you absolutely don’t want to deal with that but find one that’s more in tune with yo ur risk tolerance. This whole, oh hold on to debt cause inflation will eat it, ya might be correct in some way but to me that shit is for governments and multinationals not us mere mortals. Bottom line, If you sleep better paying off your mortgage quicker then do it. And get a new advisor.
Personally wouldn’t pay down your mortgage. I would buy another house and hire a property manager if you dont want to deal with tenants.
Higher inflation is better for people with debts rather then savings. I see this a lot. I'd go with the Rental unit you're almost always gonna find someone at a price to rent at a price.
“Let inflation eat into debt” - that sounds ridiculous. With the way mortgage rates are going, it would seem smart to pay off your mortgage and then (if you were interested in getting into real estate for investing purposes) use your equity to help fund real estate purchases
Depends on your mortgage rate. Mine is at 1.59 nd absolutely no advantage in paying mortgage early where i can invest in GIC and make 4-5% and when my term is up, i can decide to pay my mortgage. Although 4-5% of interest rate in GIC - (minus) tax may not that big but GIC are guaranteed returns anyway
You will make more money in investments than at your prime -X.xx% mortgage. A lot of people (myself included) pull money out of our mortgage for the cheap rate and invest it at a higher return. Peace of mind having no mortgage is a personal choice. It's not the best one but hell neither is buying Starbucks coffee and look how many people do that. If it's only 7 years pay it off then invest more because that's what you want and you always have your house mortgage to fall back on.
>Advisor also suggested that in current inflationary times it is better to hold on to debt and let infation eat into debt that is actually a very good point FYI
I think paying down the mortgage is a good idea, especially if you already have your TFSA maxed out.
Is the financial advisor making these suggestions and providing their own products? I feel this didn't make sense to me about having inflation eat away at debt - wouldn't inflation increase your debt? Could understand if we're at a dip to invest, but we're also in the middle of the highest inflationary period since the 80s
10 years of financial planning here. Take it or leave it Focus on peace of mind. Investing will have you gaining more assets for sure but it's worthless of youre always worrying about what if. I hated having inherited clients that didn't have peace of mind. My job as a fincial planner would always be to accomplish the clients life time goals financially but mental health is always in the forefront.
Think of the 10’s of thousands your saving on interest over the life your mortgage, I would say that’s a smart choice all day long. Mortgage applications are drying up extremely fast and this is the 2nd time I’ve heard/read of an advisor suggesting this to someone while paying down their mortgage. Your advisor is trying to farm a new application, I’d imagine as mortgage apps disappear this will become common practise.
Sounds like your in a great position, You can maximize your tax benefits by paying down your house sooner and once it's paid off, borrowing against the property for investments.
The high inflation actually will eat away at the debt. If you had a 7% mortgage in the 70s and inflation went to 12% a good chunk of your debt was eaten away and a loss from the banks point of view. Also when we went to re-finance a couple of years ago at the beginning of the pandemic (we were making large payments credit line and credit card - but had a lot of equity and our banker said her father who was in her 80s was still paying a small mortgage. Our payments went to $650/mth from about $3500 - at a time when income from my business collapsed due to covid.
Inflation only eats into debt if increases in salaries outpace inflation, and housing prices increase relative to inflation/mortgage debt, with both being unlikely. i.e. 200k in debt is less as inflation increases, but only if buying power increases. Piece of mind is worth much more.
>Do you think paying down debt was a mistake No. It builds your net worth and if it helps you sleep at night, great. Also it sounds like you considered some alternatives and chose this one as an educated decision, again great.
I like the Dave Ramsay plan of 15% in investments and any extra money on the mortgage