# mortgage paydown vs investing



## SuperGrover (Oct 24, 2011)

I just wanted to see everybody's thoughts on my situation as i flip flop my mind on it.

We are currently making double payments on our mortgage (~$1,500 extra/month), should we continue making double payments or put this money to investments?

We live in a townhouse where noise transfer is quite a bit and the wifey hates it and already wants to move to a detached house. This creates a dilemma as i dont want to move to the suburbs of Calgary. We are 26 and got this place a year and a half ago. The new mortgage will be significantly higher (prob x 2 of what we currently have) to get a detached home somewhere nearish to innercity. Right now mortgage is 1.7x salary. Also to note, we both have DB pensions, put money into rrsp's and tfsa's. Dont have lots of investments yet, around ~$25K. Also, I dont think we will be moving for a year or two. I dont want to move without more investments so i am not too heavy into real estate (primary only).

So knowing that all extra payments will just go to a bigger house/mortgage, what would you do


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## Guigz (Oct 28, 2010)

I was in your position a short while ago. In the end, I did a little bit of both.

A big difference between your situation and mine is that we were planning to stay where we lived for quite a while still. Since you are planning to move soon (and you don't like your current place), it may make more sense to pay the mortgage. That way you won't be stuck in an awkward position if the house market takes a dump. 

Also, a major factor is the rate that you are paying on the mortgage. If you think you are unable to grow your savings at at least this rate times (100%+ your marginal tax rate), it is not even worthwile to consider the investments.


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## Spudd (Oct 11, 2011)

What do you mean by "investments" if you say you already have money in RRSP's and TFSA's? Do you mean a non-registered investment account? Or is the 25K including the RRSP and TFSA money?


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## Sampson (Apr 3, 2009)

I like to focus on investing when mortgage rates are low, and pay down the mortgage when rates are high. We always do both (top up mortgage payments and continue to invest) but have focused more on investments since 2008.

All this being said, success in invested dollars won't make the noise go away.


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## My Own Advisor (Sep 24, 2012)

I'm with Sampson, focus on investing when mortgage rates are low but we're actually doing both since I don't expect rates to stay low forever. When they do rise, the interest on our debt will be much more manageable. We hope to have the mortgage paid off in 9 years almost to the month. 

We're currently making lump sum payments every 2 weeks on our mortgage and trying to maximize our TFSAs every year. We optimize our RRSPs.


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## Oldroe (Sep 18, 2009)

Sounds like you are doing a little of everything and everything about right.

Life starts when your mortgage ends. Just don't forget to have some fun along the way.


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## the-royal-mail (Dec 11, 2009)

Your post seems to be jumping all over the place. "Don't want to move without investments"...?? What's that all about?

It's probably not a good idea to lock any money away in "investments" if there is uncertainty about your housing situation. If your wife is not happy due to noisy neighbors that is a problem that festers every single day. It almost sounds to me like you're trying to "invest" your money so that it is not available for a new house? Why are you so opposed to buy a single detached house "in the suburbs"?

Peace on the home front is priceless. Invest in that.


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## Sampson (Apr 3, 2009)

the-royal-mail said:


> Why are you so opposed to buy a single detached house "in the suburbs"?


You clearly haven't lived in the burbs in Cowtown. House after house after house of the same. Most communities have very few house designs assigned to each community. Monotony, poor access to anything interesting, and a MUST to own and drive your car (transit is somewhat mediocre).

Avoid at all costs... (if possible)


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## SuperGrover (Oct 24, 2011)

Thanks for the replies, so far I think I will continue making the double payments for now. I will look at how much we are saving for investments and ensure that they are not being left out. And then when we get our job bonus, will decide where it is best to put that extra dollars to work. 

Yes, 25K is the total of rrsp and tfsa. They are being added to but not at the maximum rate. One of my goals is to maximize both in 2013 for both of us but I dont believe I will get there after looking at the numbers. Tfsa first since we have a solid db pension and its easy to get dollars out if needed.

Suburbs, i have friends that moved out there. It's getting ridiculous how spread out Calgary is and how long it takes to drive at night let alone during rush hour. I refuse to move somewhere where my daily commute is over an hour (really 1.5 hrs from there). twenty mins would be perfect, can live with thirty. I believe that hour of saved time is very important when there are very few hours in the day in which are free. Ideally i can delay buying a house long enough (3 years would be perfect but prob 1.5-2 years is likely) to be have most of the mortgage gone (260K right now) and lots of investments. 

I dont want to move without investments... aka i want to have a split of my asset and not be too heavy in my house. I dont believe that investments are locked in (tfsa), since they will be stocks (very liquid) and can be sold at anytime sometimes for a loss but not a total loss. I would rather have 150K mortgage with 100K of investments rather than a 50K mortgage and no investment, just in case the worst happens and both of us lose our jobs. Very unlikely but could happen. It should be "easy" to beat mortgage rate w/ tax rate but want to see how much diversification i should have.


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## the-royal-mail (Dec 11, 2009)

Thanks for the explanation. That makes more sense now. So basically you are treating your investments as emergency reserves. And yes, commute time is a huge factor that affects quality of life as well. Tough call, get better quality housing vs shorter commute. Can you get better quality housing (ie. without the noise etc) where you are now (maybe condo?) or is that out of the question?


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## SuperGrover (Oct 24, 2011)

Yes, they are treated as emergency reserves in the worst case scenario. Nope, condo is out. Next place is detached house, cant argue with the wife on this one. But we are the type of people who will do home renos. So the goal is to buy a place that you can live in, just super out of date kitchen bathrooms and install hardwood.


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## Sampson (Apr 3, 2009)

Don't know what your budget is like, but there still are some inner city neighborhoods with old 'fixer-uppers' in the $350,000-$450,000 range. You won't get much house, but if you are willing to renovate and live in a smaller <1000sqft unit you should get the privacy your wife is seeking.

Hint, don't look to the SW


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## cardhu (May 26, 2009)

SG ... don’t feel obliged to justify yourself re: suburbs or investing before moving ... no need to live your life according to other people’s prejudices. 

I haven’t read all the responses, but if any of them said something like _“you can’t go wrong with a balanced approach”_, then I agree with those responses. In order to isolate the one choice that will outperform all the other choices, you must be able to accurately predict the future. I assume you don’t have that ability, so spread the money around, emphasis on investments when mortgage rates are low, on mortgage when mortgage rates are high. Non-registered investments have an inherent disadvantage compared to a mortgage paydown, but RRSP and TFSA do not. 

Here’s a rather lengthy thread that goes into the invest vs. mortgage debate in some detail ... it’s a little dated, so the interest rates aren’t current, but the general principles don’t change.


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## SuperGrover (Oct 24, 2011)

One last thing is, since Sampson brough up our range. I think the range is 500,000 - 750,000 house price and i think the mortgage will be 500,000 or less and that the house price floats on how much equity we have. So putting the money into this mortgage just might end up going to a bigger house, ideally this would not happen but you know real life...
Part of the reason I want to invest more


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## realist (Apr 8, 2011)

How much to add a layer of soundproofing/insulation to the walls? Potentially cheaper than a move!


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## SuperGrover (Oct 24, 2011)

The noise is not the only reason to move, just the one accelerating it. We have a front yard but its open, not fenced off on a very busy road. I should have put the sound proofing dry wall (or even ripping out existing and adding in the proper insulation, in when i reno'd the main room, i am kicking myself for not doing that but when we reno'd, previous people lived in it who were much quieter. I could still do that and deciding if it would be worth it to install it on certain rooms of the shared walls. I also have to redo the kitchen and bathrooms which is why i havent done that. Still might be worth it to soundproof the main room and master bedroom which conviently is next to the other townhouse master. Could have been in the corners with no shared walls but the building/designer wasnt the smartest with the space.


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