# Why would I pay off my mortgage?



## Steady (Apr 17, 2013)

Just found this forum and have really enjoyed it so far!!!!! I am working on a 5 year plan and have have been thinking about my mortgage vs investing. My natural tendency is to direct funds to pay down my mortgage as quick as possible. I am currently in a prime - 0.9 variable for 3 more years. My RRSP is close to maxed but I don't have any money in mine or my wife's TFSA. Considering that we can get 2.55% at Canadian Direct Financial I can't see any sense in putting more than the minimum towards the mortgage. 

With these low mortgage rates is anybody paying down their mortgage. I just don't see it making sense......I guess at some point the numbers will change but if my rate went up to 3.5% it still seems like I would be better to invest (especially until my TFSA is topped up).


----------



## lonewolf (Jun 12, 2012)

Is the interest rate on your mortgage lower then the interest rate on a TFSA ?


----------



## Just a Guy (Mar 27, 2012)

Well, it would depend on the rest of your situation. Do you have other debt? If so, paying off higher interest first makes more sense. How are your investments doing? If you bought something like Apple in the past year, you would have been better off paying down your mortgage. How secure is your job? What would happen if you lost it, got injured and couldn't work?

Debt is still debt, no matter how low the interest, it still costs you money every month. Even at these "low" rates, over 25 years you'll still wind up paying more than twice your purchase price for the house. Remember that when you look at your "profits". 

Now a rental, which generates income to pay for itself and where the interest is deductible may be considered differently, but a home costs you money.


----------



## newfoundlander61 (Feb 6, 2011)

For the past few years I put every last penny left every month on my mortgage and am now debt free. The same amount of money to pay the mortgage is now going into a TFSA. This worked for me so its really a personal decision and won't be functional for everyone due to other debt; kids etc.


----------



## Echo (Apr 1, 2011)

I don't really see the point of any savings account arbitrage to save 0.45%. Are you talking about investing, or just putting extra money in a high interest savings account within a TFSA?


----------



## Spudd (Oct 11, 2011)

I do some of each, mainly because having a debt that's greater than my annual salary freaks me out. Even if I can easily afford the payments (which I can), I hate seeing that huge negative number in my bank summary.


----------



## Oldroe (Sep 18, 2009)

Life starts when the mortgage ends.

This is your opportunity to get the most money on your principal. And yes you need to balance all of these things mortgage, tfsa, rrsp, and still have a life.

We focus on the mortgage and invested small amounts, when the mortgage ended we ramped it up. Retired at 50.


----------



## NorthKC (Apr 1, 2013)

If you have the opportunity to pay off your mortgage in full especially if you have a lot of years left, this is a good time to really get ahead of the curve. Make the extra payments above your minimum payments. Like what oldroe says, life starts when mortgage ends. At the very least, you'll have more breathing room.


----------



## Four Pillars (Apr 5, 2009)

Nothing wrong with doing the TFSA. If you change your mind later, you can always withdraw from the TFSA and pay down/off the mortgage.


----------



## RBull (Jan 20, 2013)

I like that...and I like the rest of what you say. Retired ours at age 35 (5 years) and maintained a nice life balance before and after. The best part is the control and freedom you have. The toughest thing to resist after payout, is not to take on debt if you decide to move up. 



Oldroe said:


> *Life starts when the mortgage ends.*
> 
> This is your opportunity to get the most money on your principal. And yes you need to balance all of these things mortgage, tfsa, rrsp, and still have a life.
> 
> We focus on the mortgage and invested small amounts, when the mortgage ended we ramped it up. Retired at 50.


----------



## Ihatetaxes (May 5, 2010)

Paid our $300k mortgage off in 5 years and now have an $800k house that is paid for. Could I have done better putting that money in the markets? Maybe. Do I sleep well with my choice? Absolutely! :encouragement:


----------



## blin10 (Jun 27, 2011)

if you can do better with stocks then mortgage is not priority, but big question IF... most likely you can't, but if you got paid off mortgage that's a guaranteed 3-4% return on your money


----------



## Steady (Apr 17, 2013)

lonewolf said:


> Is the interest rate on your mortgage lower then the interest rate on a TFSA ?


Right now, yes. 2.1 on the mortgage and 2.55 at CDF.


----------



## Steady (Apr 17, 2013)

Hah!!! You got me there. We retired our first mortgage about 7 years ago.....then a job related move into a more expensive real estate market (plus the upgrade you mention) has put us back where we are. 



RBull said:


> I like that...and I like the rest of what you say. Retired ours at age 35 (5 years) and maintained a nice life balance before and after. The best part is the control and freedom you have. The toughest thing not to after payout, is not to move up and take on debt again.


----------



## randomthoughts (May 23, 2010)

I think there's a bit of 'success bias' here (I've been meaning to do a post on that...)

Like others here, I paid off my mortgage in 5 years and have loved the feeling of security and the lack of mortgage payments (well... I still make them, just into a savings account).

But if you can make a guaranteed tax-free/after-tax income that's higher than the interest that you're paying on your mortgage, without sacrificing flexibility, I can't think of a rational reason not to do that.

(It's like those people who tackle the smallest debt balance instead of the highest interest balance - because success bias might help them continue, and other people who have done the same and succeeded reinforce that bias. It's completely looney, though, and not rational.)


----------



## brad (May 22, 2009)

randomthoughts said:


> But if you can make a guaranteed tax-free/after-tax income that's higher than the interest that you're paying on your mortgage, without sacrificing flexibility, I can't think of a rational reason not to do that.
> 
> (It's like those people who tackle the smallest debt balance instead of the highest interest balance - because success bias might help them continue, and other people who have done the same and succeeded reinforce that bias. It's completely looney, though, and not rational.)


It really depends on whether your priority is a better bottom line or more peace of mind, and whether you feel constrained by debt. It's not a purely financial question, it's in large part a psychological one.

There's an opportunity cost involved in paying down the mortgage vs. investing, but many people are willing to pay that cost because the benefit is worth however many tens of thousands of dollars they might be foregoing. 

When someone decides to have kids, we don't view it as a financial decision, even though having kids can have an enormous negative impact on your financial bottom line. We have kids despite the cost, because we want to have kids. Similarly, people who want to be debt-free will pay down their mortgage despite the opportunity cost, because they want the peace of mind and flexibility that come with freedom from debt. It's not rational from a bottom-line perspective, but neither is having kids.


----------



## Steady (Apr 17, 2013)

I think this is exactly what I am struggling with. I want to work at paying it off for the freedom / piece of mind that comes with not having that debt hanging over your head (I don't have any other debt). But logically (at least while I can get guaranteed tax free return better than my mortgage rate) it would not make sense to pay down the mortgage. While the numbers are where they are at (and I have room in my TFSA) I think I have to direct money in to the TFSA.....not sure I would invest (stock, MF, ETF) with that money though.....

I guess its a personal choice...just very interesting to hear different opinions.



brad said:


> It really depends on whether your priority is a better bottom line or more peace of mind, and whether you feel constrained by debt. It's not a purely financial question, it's in large part a psychological one.
> 
> There's an opportunity cost involved in paying down the mortgage vs. investing, but many people are willing to pay that cost because the benefit is worth however many tens of thousands of dollars they might be foregoing.
> 
> When someone decides to have kids, we don't view it as a financial decision, even though having kids can have an enormous negative impact on your financial bottom line. We have kids despite the cost, because we want to have kids. Similarly, people who want to be debt-free will pay down their mortgage despite the opportunity cost, because they want the peace of mind and flexibility that come with freedom from debt. It's not rational from a bottom-line perspective, but neither is having kids.


----------



## RBull (Jan 20, 2013)

brad said:


> It really depends on whether your priority is a better bottom line or more peace of mind, and whether you feel constrained by debt. It's not a purely financial question, it's in large part a psychological one.
> 
> There's an opportunity cost involved in paying down the mortgage vs. investing, but many people are willing to pay that cost because the benefit is worth however many tens of thousands of dollars they might be foregoing.
> 
> When someone decides to have kids, we don't view it as a financial decision, even though having kids can have an enormous negative impact on your financial bottom line. We have kids despite the cost, because we want to have kids. Similarly, people who want to be debt-free will pay down their mortgage despite the opportunity cost, because they want the peace of mind and flexibility that come with freedom from debt. *It's not rational from a bottom-line perspective*, but neither is having kids.


I agree but would amend the hi lited line to *may *not be rational. But then arbitrage *may* also not be rational. Paying off the mortgage is 3% range after tax and for some of us was 9+% after tax.


----------



## praire_guy (Sep 8, 2011)

brad said:


> It really depends on whether your priority is a better bottom line or more peace of mind, and whether you feel constrained by debt. It's not a purely financial question, it's in large part a psychological one.
> 
> There's an opportunity cost involved in paying down the mortgage vs. investing, but many people are willing to pay that cost because the benefit is worth however many tens of thousands of dollars they might be foregoing.
> 
> When someone decides to have kids, we don't view it as a financial decision, even though having kids can have an enormous negative impact on your financial bottom line. We have kids despite the cost, because we want to have kids. Similarly, people who want to be debt-free will pay down their mortgage despite the opportunity cost, because they want the peace of mind and flexibility that come with freedom from debt. It's not rational from a bottom-line perspective, but neither is having kids.



Either way your bottom line is better. Investing and mortgage pay down both increase your net worth. 

What gets you ahead more interest savings, or investment earnings? Hard to say. Too many factors. Do whatever makes you sleep better at night.


----------



## newfoundlander61 (Feb 6, 2011)

Echo said:


> I don't really see the point of any savings account arbitrage to save 0.45%. Are you talking about investing, or just putting extra money in a high interest savings account within a TFSA?


For my TFSA money is invested in a Canadian Balanced Index Fund, I also have an RRSP. None of my money is sitting in cash.


----------



## brad (May 22, 2009)

praire_guy said:


> Either way your bottom line is better. Investing and mortgage pay down both increase your net worth.



Sorry, I should have said "relatively better" bottom line. The argument is generally that if have $x available to either invest or pay down your mortgage and you believe you can make more through investing than you'll save in interest by applying that money toward paying down the mortgage, you should invest. All I'm saying is that for many people this is not a purely financial, bottom-line decision.


----------



## fraser (May 15, 2010)

Don't forget the tax implications.

You pay your mortage with after tax dollars. You are comparing mortgage interest paid with after tax dollars to pre tax interest income. It may depend on your marginal tax rate. It would of course be sheltered in a TFSA.


----------



## MoneyGal (Apr 24, 2009)

Steady said:


> Just found this forum and have really enjoyed it so far!!!!! I am working on a 5 year plan and have have been thinking about my mortgage vs investing. My natural tendency is to direct funds to pay down my mortgage as quick as possible. I am currently in a prime - 0.9 variable for 3 more years. My RRSP is close to maxed but I don't have any money in mine or my wife's TFSA. Considering that we can get 2.55% at Canadian Direct Financial I can't see any sense in putting more than the minimum towards the mortgage.
> 
> With these low mortgage rates is anybody paying down their mortgage. I just don't see it making sense......I guess at some point the numbers will change but if my rate went up to 3.5% it still seems like I would be better to invest (especially until my TFSA is topped up).


Well...depending on where you are in your mortgage, this comparison is a little deceiving (in addition to the problem of comparing before-tax and after-tax rates of return pointed out by whoever made the post just above mine). 

Mortgage interest is front-loaded. Let's say you have a $100K mortgage on which you are paying 1.5% interest rate, you have 20 years remaining of a 25-year amortization on which you make accelerated bi-weekly payments, and let's say you have $10K free cash flow. Are you better off paying down your mortgage, or investing in a TFSA?

In the TFSA, you would achieve 2.55% over the next 12 months, so your realized return would be 10,000*2.5%=$250 (ignoring all compounding). 

But what is the impact of putting that $10K on your mortgage? Using these variables, you'd shorten your amortization by 2.6 years, and save $3,300 in interest. So is the TFSA at 2.5% *really* a "better" return? 

Canadian mortgage calculator: http://www.dinkytown.net/java/CAMortgagePayoff.html


----------



## randomthoughts (May 23, 2010)

MoneyGal said:


> Well...depending on where you are in your mortgage, this comparison is a little deceiving (in addition to the problem of comparing before-tax and after-tax rates of return pointed out by whoever made the post just above mine).
> 
> Mortgage interest is front-loaded. Let's say you have a $100K mortgage on which you are paying 1.5% interest rate, you have 20 years remaining of a 25-year amortization on which you make accelerated bi-weekly payments, and let's say you have $10K free cash flow. Are you better off paying down your mortgage, or investing in a TFSA?
> 
> ...


I'm not sure that's apples to apples - you're comparing the 1 year return to the savings over the entire amortization of the mortgage? I feel you'd have to compare the compounded return of the investment over the same period - and of course consider risk.



brad said:


> It's not rational from a bottom-line perspective, but neither is having kids.


Hmm, keeping in mind that I'm rather aggressively rational in the theoretical realm (I should at least know when I'm being irrational...), I would argue that purely financial decisions should be made on a numerical basis whenever possible (risk and consequence is definitely part of that). 

I realize that I oversimplified in my reply for illustration (by saying things like guaranteed/after-tax), but there wasn't really enough detail to do otherwise (person's tax bracket, mortgage interest rate etc). 

With kids, on the other hand, I completely agree that decisions (or lack thereof) have to be made with more than just rational justification.


----------



## brad (May 22, 2009)

randomthoughts said:


> Hmm, keeping in mind that I'm rather aggressively rational in the theoretical realm (I should at least know when I'm being irrational...), I would argue that purely financial decisions should be made on a numerical basis whenever possible (risk and consequence is definitely part of that).


Sure, but my point is that this is not a purely financial decision. People may have reasons to get out from under a mortgage that have nothing to do with finances. If, for example, someone wants to switch careers but can't afford the initial paycut because they couldn't continue to meet their mortgage payments, they may want to accelerate payoff of their mortgage to broaden their options.


----------



## jcgd (Oct 30, 2011)

MoneyGal said:


> Mortgage interest is front-loaded.


I may be wrong, but I don't believe a mortgage is front loaded. You are just paying the owed interest on the present value of the loan at each payment. The interest early in the loan payment schedule is high, because the money owed is high. If you pay down some of the balance of the loan early, you no longer have to pay interest on that amount, whereas on a front loaded loan you would still have to pay that interest.


----------



## MoneyGal (Apr 24, 2009)

jcgd said:


> I may be wrong, but I don't believe a mortgage is front loaded. You are just paying the owed interest on the present value of the loan at each payment. The interest early in the loan payment schedule is high, because the money owed is high. If you pay down some of the balance of the loan early, you no longer have to pay interest on that amount, whereas on a front loaded loan you would still have to pay that interest.


It's the terminology the industry uses, random example here: https://www.cibc.com/ca/mortgages/mortgage-resources/mortgage-principal.html

However, as your post points out, there's no standard terminology. I could have said, "in the early years of a mortgage, a higher proportion of your total payment goes to interest than in the later years of your mortgage payments," but went with something shorter. :02.47-tranquillity:


----------



## Cal (Jun 17, 2009)

I don't understand why you would be happy with 2.55% in a TFSA, if you need aemaregency fund just get a LOC or keep it in a chequing acct. If you want it for investing purposes, which the TFSA is great for, why put it in a HISA.

Ultimately you have to do what helps you sleep best at night.


----------



## Oldroe (Sep 18, 2009)

The thinking that you will move your money from your tfsa to your mortgage is faulty.

Say interest rate starts slowly going up, that will put pressure on stock markets and you get into a situation were you need to sell stocks/etf's. This is the hardest thing to do (sell Winners).

Say the housing market does crash 20%, everything will be down your tfsa, your rrsp, so this money that you were going to dump on your mortgage is gone.

I say emphasize your mortgage and invest smaller amounts .

Learn about markets buying selling moving money around so when mortgage free days happen you are less likely to make huge mistakes.


----------



## RBull (Jan 20, 2013)

Sounds like you're going to do fine. I did 2 upgrades subsequently but did the cashola thing. 



Steady said:


> Hah!!!  You got me there. We retired our first mortgage about 7 years ago.....then a job related move into a more expensive real estate market (plus the upgrade you mention) has put us back where we are.


----------



## iherald (Apr 18, 2009)

I was having this discussion with my boss the other day. I'm paying off my mortgage in about 4 3/4 years. He just bought a new property and got a mortgage on it and using free cash flow for investments.

At the end of it, we figured that there was likely a better chance he would mathematically be ahead, but that I'd sleep better.


----------



## Rusty O'Toole (Feb 1, 2012)

iherald said:


> I was having this discussion with my boss the other day. I'm paying off my mortgage in about 4 3/4 years. He just bought a new property and got a mortgage on it and using free cash flow for investments.
> 
> At the end of it, we figured that there was likely a better chance he would mathematically be ahead, but that I'd sleep better.


You said it. Today's mortgage interest rates are so low money is nearly free if you factor in inflation. A savvy investor may well do better having a big mortgage and investing his money although, as you point out, you are taking a chance.


----------



## My Own Advisor (Sep 24, 2012)

Agreed Rusty. I have a fat mortgage still and the majority of our extra funds is going on the mortgage. 

I enjoyed a previous comment, life begins after the mortgage ends. I can't wait.


----------



## financialuproar (Jan 26, 2010)

I think most people would be better off paying the mortgage, since usually people aren't nearly as good at investing as they think. Besides, paying off the mortgage eventually leaves you without a mortgage payment, which makes all other aspects of your financial life easier. Needing less every month to have shelter is a good thing.


----------



## bgc_fan (Apr 5, 2009)

iherald said:


> I was having this discussion with my boss the other day. I'm paying off my mortgage in about 4 3/4 years. He just bought a new property and got a mortgage on it and using free cash flow for investments.
> 
> At the end of it, we figured that there was likely a better chance he would mathematically be ahead, but that I'd sleep better.


That last sentence pretty much sums it up for me as well. To be free of any sort of debt gives me the feeling of flexibility that helps me sleep at night. Sure I could invest the free cash flow and hope to beat the return versus interest payments, but if everything were to tank (say worse case scenario where I also lose my job), I'd feel more comfortable with smaller debt than debt offset by a stock portfolio.


----------



## Karen (Jul 24, 2010)

All I have to say is that one of the best days of my life was the day I paid off my mortgage. It was nearly 30 years ago, and I still feel happy every time I think about it!


----------



## none (Jan 15, 2013)

That's a funny way to weight it. You still in a sense rent the house by paying property taxes and upkeep - it's just been reduced. I don't really see the big deal as I try to think of this things as flows rather than absolutes.


----------



## Plugging Along (Jan 3, 2011)

We paid off our mortgages faster even though they were under avg of 2%, and my investments 'generally' are higher.

Our rational come down to risk tolerance. We sleep better at night know that we dont have any debt. This actually allows to invest more aggresively, as our over cashflow requirements are currently lower, and we dont need as much in terms of a liquid emergency fund, which can go into higher risk, and hopefully higher returning investments.

The thing with your mortgage being paid off, means that markets won't influence how you are currently living. It doesnt matter if your house price goes down or up when the primary is to have a place to live. One may be able to do better in investments than paying the mortgage, but its not a gaurentee.


----------



## Toronto.gal (Jan 8, 2010)

none said:


> That's a funny way to weight it. You still in a sense rent the house by paying property taxes and upkeep - it's just been reduced. I don't really see the big deal as I try to think of this things as flows rather than absolutes.


I don't find anything amusing about Karen's comments.

How about pride of ownership, not reason enough to own a home? It is for many people!

You really need to stop the RE attacks at every opportunity you have.


----------



## andrewf (Mar 1, 2010)

I think it's fair enough for people to make a suboptimal financial decision if they get value out of it. Buying a house doesn't always make sense vs renting, but people are free to spend their consumption dollars where they like, including owning a home. The problem becomes when people spin owning a home as an investment decision rather than a consumption decision. Houses are often not great investments from a purely financial perspective.


----------



## none (Jan 15, 2013)

andrewf said:


> I think it's fair enough for people to make a suboptimal financial decision if they get value out of it. Buying a house doesn't always make sense vs renting, but people are free to spend their consumption dollars where they like, including owning a home. The problem becomes when people spin owning a home as an investment decision rather than a consumption decision. Houses are often not great investments from a purely financial perspective.


Exactly, there's a knee jerk reaction that buying a home is an automatic road to future financial security. In the present inflated environment that is the furthest thing from the truth. If I can stop one person who plans to jump into real estate without doing their homework then I have done a good thing and make no apology for that.

Anyway, I don't get it - 'pride of home ownership' It's an inanimate object - big deal you bought something - whoopdy doo. Inanimate objects should not be worthy of people's affection or pride. Have a baby, write a book, say a kind word to a stranger - THAT is worthy of congratulations and pride.


----------



## Plugging Along (Jan 3, 2011)

none said:


> That's a funny way to weight it. You still in a sense rent the house by paying property taxes and upkeep - it's just been reduced. I don't really see the big deal as I try to think of this things as flows rather than absolutes.


Almost everything in life costs money, including renting. 

The thing with renting verses owning is that there is ALWAYS break point, and if one holds real estate long enough they will out perform the renter in terms of over all costs of shelther. I am not talking about what one might do with the money saved on the down payment, etc. At one, the renter will still be renting and paying each, and the house owner will pay less.


----------



## none (Jan 15, 2013)

Plugging Along said:


> Almost everything in life costs money, including renting.
> 
> The thing with renting verses owning is that there is ALWAYS break point, and if one holds real estate long enough they will out perform the renter in terms of over all costs of shelther. I am not talking about what one might do with the money saved on the down payment, etc. At one, the renter will still be renting and paying each, and the house owner will pay less.


Here is yet another example of the false belief that home owner ship will always beat out renting. What you wrote can be true but can also be very very wrong. Ask anyone who purchased a house in toronto in 1987 - 1989 whether they wished they had rented rather than bought (assuming they sold before 2008).


----------



## andrewf (Mar 1, 2010)

Plugging Along said:


> The thing with renting verses owning is that there is ALWAYS break point, and if one holds real estate long enough they will out perform the renter in terms of over all costs of shelther.


But that doesn't account for opportunity costs. Who cares if the renter is still renting when the mortgage is paid off, if they also have a $1 million more in financial assets?


----------



## Toronto.gal (Jan 8, 2010)

none said:


> 1. If I can stop one person who plans to jump into real estate without doing their homework then I have done a good thing and make no apology for that.
> 2. big deal you bought something - *whoopdy doo*.


1. I don't disagree with this at all.

2. You seem to criticize everyone who's a homeowner here, so in your view, should everyone be renting? Think what that would mean for a minute? 

Karen will be 70 in a few days, and has paid off her mortgage 30 years ago, which should have given you a little clue about her age, what's funny about living in one's own home at ANY age though?

I can accept that home ownership is no big deal to you [seems to be the case regardless of market conditions], but why can't you accept that not everyone thinks the way you do? If you want to live all your life in a place that belongs to someone else, that is perfectly fine, by all means, but why does it bother you so much what others have already?!


----------



## CanadianCapitalist (Mar 31, 2009)

none said:


> Exactly, there's a knee jerk reaction that buying a home is an automatic road to future financial security. In the present inflated environment that is the furthest thing from the truth. If I can stop one person who plans to jump into real estate without doing their homework then I have done a good thing and make no apology for that.
> 
> Anyway, I don't get it - 'pride of home ownership' It's an inanimate object - big deal you bought something - whoopdy doo. Inanimate objects should not be worthy of people's affection or pride. Have a baby, write a book, say a kind word to a stranger - THAT is worthy of congratulations and pride.


The first part of your comment is reasonable. The second part is a matter of taste. For example, some people take pleasure in pimping their ride. I couldn't care less about my car. It's just a matter of taste, so it's fruitless arguing about it.



none said:


> That's a funny way to weight it. You still in a sense rent the house by paying property taxes and upkeep - it's just been reduced. I don't really see the big deal as I try to think of this things as flows rather than absolutes.


For the sake of argument, let's say that a paid-off home is is surely overpriced and is going to fall in price 20 percent in the near future. Many home owners may still not care. They may like the neighbourhood, the schools the kids go to, they may hate renting etc. Selling and moving to a rental is not an easy thing to do for most people. We moved last year and it's a pain in the you-know-what.


----------



## Toronto.gal (Jan 8, 2010)

none said:


> Have a baby, write a book, say a kind word to a stranger - THAT is worthy of congratulations and pride.


Btw, I have done all that already, and the last one on your list, I do on a weekly basis at minimum!


----------



## HaroldCrump (Jun 10, 2009)

*@none* - It is easy to say : _rent and invest the rest_.
But isn't it also true that a large majority of retail investors lose money over the long term.
They aren't even keeping up with inflation (reported or real), let alone beat the market.

At the very least, residential real estate is a capital preservation mechanism more than anything else over the long run.

Given the historical probabilities of an average retail investor beating the market, if such an average investor were to follow your "advice", they would end up with no property _and_ would have lost money in the markets.

Tell us how your experience of investing in the markets is going.
The S&P 500 has returned nearly 17% in the last 1 year, incl. dividends.
How are you doing?


----------



## none (Jan 15, 2013)

1. You can disagree with it all you like it but it doesn't mean you're correct.
2. Home ownership is fine, I've owned a house made a sweet penny on it - great. The issue is should be buy NOW rather than rent in Canada? Although I;m sure exceptions can be pointed out the vast majority of instances the answer would be a big HELL NO.
3. I'm fine that people own houses - I may buy one myself in 5 or so years - it's people who are perpetrating the con that home ownership is a financially sound investment plan which is absurd. 

FWIW, I could buy another house if I wanted, I just don't see the need. Buying a house now is an extremely risky financial move and my emotional ties are with my family rather than a bunch of wood and stucco.


----------



## Toronto.gal (Jan 8, 2010)

CanadianCapitalist said:


> It's just a matter of taste, so it's fruitless arguing about it..... They may like the neighbourhood, the schools the kids go to.....


That's exactly it!

I would also argue that homeowners make a community much stronger than renters!


----------



## none (Jan 15, 2013)

CanadianCapitalist said:


> . We moved last year and it's a pain in the you-know-what.


I certainly agree with that!


----------



## none (Jan 15, 2013)

Toronto.gal said:


> Btw, I have done all that already, and the last one on your list, I do on a weekly basis at minimum!


As have I (well research articles in the place of a book). I take much more pride in those accomplishments (although having a kid really was only about 50 seconds of real work) than the previous house I owned.


----------



## Toronto.gal (Jan 8, 2010)

none said:


> The issue is should be buy *NOW* rather than rent in Canada?


If the issue with you is 'now' [and that i can understand], what about those that are already owners, should they sell IYO? Is it amusing that others, too, have paid off their mortgages already?

Also, Canada is a pretty big country, and the situation isn't the same everywhere.


----------



## MoneyGal (Apr 24, 2009)

none said:


> As have I (well research articles in the place of a book). I take much more pride in those accomplishments (although *having a kid really was only about 50 seconds of real work*) than the previous house I owned.


Spoken as only a man can.


----------



## RBull (Jan 20, 2013)

Well it's good to see it is not only me that is sensing the same thing. 

none, I respect your choice to rent but you need not try so hard to suggest people who do otherwise are wrong in their choice. I'm not reading others on here bleating about how poor a choice a renter is making. There are pros and cons to both, and there are many factors involved in making this kind of choice. 



Toronto.gal said:


> 1. I don't disagree with this at all.
> 
> 2. You seem to criticize everyone who's a homeowner here, so in your view, should everyone be renting? Think what that would mean for a minute?
> 
> ...


----------



## none (Jan 15, 2013)

Toronto.gal said:


> If the issue with you is 'now' [and that i can understand], what about those that are already owners, should they sell IYO? Is it amusing that others, too, have paid off their mortgages already?
> 
> Also, Canada is a pretty big country, and the situation isn't the same everywhere.


Sure, declines won't be observed everywhere to the same extent but seeing that all markets experienced extreme run ups in prices it is highly improbable that the price increases to do not share a similar (or the same) causal mechanism.

I spoke with a friend on the weekend who wanted to buy my old house (it was being sold by the new owners who purchased it 2 years ago). I explained to her why buying now is foolish. She asked if she should sell and I told her that I think that is where the smart money really is but because she purchased her home 3 years ago that she would be insulated from a substantial correction - at least it won't be life destroying. But really, buying and selling is so expensive as is I would need to look at the math.

Paying off your mortgage is fine but in the present uber low rate environment it's likely a suboptimal financial decision.


----------



## none (Jan 15, 2013)

Anyway, I get the message everyone. 

Although I'm quite confident about RE I really rely on all of you for the great financial advice you all have given me in the past (and hopefully continue to provide).

I will absolutely tone things down.


----------



## Four Pillars (Apr 5, 2009)

none said:


> ...having a kid really was only about 50 seconds of real work...





MoneyGal said:


> Spoken as only a man can.


Well, maybe that's how long it took him to do his part.


----------



## bgc_fan (Apr 5, 2009)

none said:


> 1. You can disagree with it all you like it but it doesn't mean you're correct.
> 2. Home ownership is fine, I've owned a house made a sweet penny on it - great. The issue is should be buy NOW rather than rent in Canada? Although I;m sure exceptions can be pointed out the vast majority of instances the answer would be a big HELL NO.
> 3. I'm fine that people own houses - I may buy one myself in 5 or so years - it's people who are perpetrating the con that home ownership is a financially sound investment plan which is absurd.
> 
> FWIW, I could buy another house if I wanted, I just don't see the need. Buying a house now is an extremely risky financial move and my emotional ties are with my family rather than a bunch of wood and stucco.


Personally, I've never believed that owning a house should be your one and only investment plan. But, when it comes down to the fluctuation in home prices it depends on the circumstances on the home purchase. Let's say that there is a house that you like is on the market and the opportunity to purchse is now, even at an inflated price (market depending). Do you wait until you feel the market hits rock bottom (could take up to 10 years or more depending on your market), and rent in the meantime but then settle for a second choice house at the appropriate time? But let's add to the fact that you plan on living there for 30+ years. Does the drop in the house price really matter as long as you are still living there and not selling it? 

It's really only the speculators who take the big hit, though there are those whose jobs dictate that they move who also get hurt. But if you are staying there in the long term, does the day to day price of the house really matter?


----------



## Toronto.gal (Jan 8, 2010)

MoneyGal said:


> Spoken as only a man can.


Was having [not making] your babies just a '50 seconds of real work' for you M.gal?


----------



## MoneyGal (Apr 24, 2009)

Two babies born without any form of medical intervention, one at home. Both births lasted slightly longer than 50 seconds. I recall 50-second contractions!

Edit: in the home that I own. :tongue-new: (the bank still owns a little bit)


----------



## Karen (Jul 24, 2010)

I loathe the thought of having to move, which is one reason I'm so glad that nobody can ever make me do so. The only reason I would ever move out of my house is if my health got so bad that it was impossible for me to stay here and then it would be my kids' problem, not mine!


----------



## Sampson (Apr 3, 2009)

Weird, I really thought I posted to this thread earlier.

My response as always is do a bit of both. I won't wade into the spirited discussed in this thread, but I will say that neither markets, housing, nor equities is particularly predictable.

Housing could drop by 20%, or your stocks could drop by 40%. Maintaining balance amongst your assets and not being overexposed any single asset class is key.

So don't shoot for the stars, pay a little mortgage down, invest a little money, stay diversified.


----------



## Hawkdog (Oct 26, 2012)

Karen said:


> All I have to say is that one of the best days of my life was the day I paid off my mortgage. It was nearly 30 years ago, and I still feel happy every time I think about it!


Congrats Karen, it must feel have felt really good!


----------



## sags (May 15, 2010)

Congratulations to everyone who stayed the course and paid off their homes.........or are on the path to doing so.

Sadly, from the statistics, a home is the only asset a lot of people have, and they will have to sell even though it has a lot of emotional value for them........... to finance their retirement.

I was sitting in the doctor's waiting room one day, and a woman saw an older gentleman that she used to work with. As they talked, she asked him if he still enjoyed gardening in the backyard of his home. He almost broke into tears, as he shook his head and said he sold the home and was now living in an apartment just down the road. He said he really missed puttering around in the backyard. It was quite an emotional scene and got me to wondering how many other people are destined for the same future.

Work hard......pay off a home filled with memories........be forced to sell it to pay for retirement.

There are lots of renters in our area..................almost all former home owners.

So it is already happening.

We sold our home 7 years ago and have gotten use to living in a rented townhome, but we probably will buy again as the emotional tug of "having or own place" is just too strong for me. It doesn't bother my wife to just continue renting............and it doesn't make any financial sense for us to own vs renting..........given our low monthly rent of 1000..........but you can't change the feelings.

Besides the way I look at it.............we leave our kid cash............or a home and some cash.........either way he gets it all.


----------



## Oldroe (Sep 18, 2009)

The more you pay off your mortgage the more leverage you have at the banks. You don't get this leverage with investment portfolios and renting.

Everything at banks is negotiable if you have the #'s on your side. 

Post 09 investing has been gravy train, make sure you ready for the nasty markets tick tick tick.


----------



## andrewf (Mar 1, 2010)

What do you need leverage at a bank for? A low rate on your non-existent mortgage?


----------



## Oldroe (Sep 18, 2009)

GIC, investment property's, vacation property's, all fees.

When the markets get crushed and everything you have is down 30% the payed off house goes to the bank negotiates a sweet deal gets their money in right. 

You renter/investment people you just take it. You know just take it.


----------



## none (Jan 15, 2013)

Well that makes no sense.


----------



## CanadianCapitalist (Mar 31, 2009)

Sampson said:


> So don't shoot for the stars, pay a little mortgage down, invest a little money, stay diversified.


Bingo! As Harold pointed out in his post, renting isn't a sure thing because (1) most people aren't disciplined enough to save the difference (2) and among those who do manage to save, the average returns are likely to be poor. But some people go the other way and pay down only the mortgage aggressively at the expense of other savings and then are tempted to upgrade to a bigger home. So, a balance is usually best.


----------



## none (Jan 15, 2013)

CanadianCapitalist said:


> Bingo! As Harold pointed out in his post, renting isn't a sure thing because (1) most people aren't disciplined enough to save the difference (2) and among those who do manage to save, the average returns are likely to be poor. But some people go the other way and pay down only the mortgage aggressively at the expense of other savings and then are tempted to upgrade to a bigger home. So, a balance is usually best.


People hold houses for an average of 5 years. assuming a 500K house and paying a 7,3,3,3,3 sell rate - you'll pay 19K just to sell it. Add closing costs and you're up to $25,000 just to buy and sell the house. That's about 1 year of rent (or more).

But yes, I agree. Either be 100% stocks and bonds, or a good chunk of mortgaged payed off and a good chunk stocks and bonds. Either way having money invested somewhere is generally a good idea.


----------



## BlackThursday (Apr 25, 2011)

none said:


> People hold houses for an average of 5 years.


cite?


----------



## none (Jan 15, 2013)

Lame source I know - I'll work on it later - sorry, single parenting a 3 year old right now -- googling is a little difficult!

http://homebuying.about.com/od/sellingahouse/qt/0207WhyMove.htm


----------



## MoneyGal (Apr 24, 2009)

There isn't good data on this point for Canada (and for what it's worth, that source appears to be totally anecdotal). 

The data for Canada tells us that, for people with mortgages (i.e., homeowners without a paid-off home), 67% had purchased their homes in the 10 previous years (2008 data, from here: http://www.statcan.gc.ca/pub/75-001-x/2011002/article/11429-eng.htm). 

Of homeowners in Canada, about 57% had a mortgage in 2008 and the remaining 43% were mortgage-free (same data source). 

So what we can infer is that for the 57% of homeowners with a mortgage in 2008, 67% had owned their homes for 10 years or less.


----------



## Toronto.gal (Jan 8, 2010)

MoneyGal said:


> 1. Two babies born without any form of medical intervention...
> 2. Edit: in the home that I own. :tongue-new:


*1.* Wow, you have my admiration, but doing it au natural is not something I would have ever considered. 
*2.* :biggrin:

I think _none _is confusing home with car ownership now. :chuncky:


----------



## HaroldCrump (Jun 10, 2009)

Toronto.gal said:


> I think _none _is confusing home with car ownership now.


Some of us keep our cars almost as long as some keep their homes.
In fact, my car is older than my home.


----------



## Toronto.gal (Jan 8, 2010)

You can include me in that select club also Harold. 

My car is almost as old as our home as well, ie: 10+ years, and zero debt!


----------



## none (Jan 15, 2013)

Toronto.gal said:


> *1.* Wow, you have my admiration, but doing it au natural is not something I would have ever considered.
> *2.* :biggrin:


You shouldn't either. Western medicin exists for a reason.

The evolutionary tug of war of walking upright and big brains makes humans generally pretty bad at giving birth.

Here is an interesting article on how 'natural child birth' is really risking the health and life of the baby for misguided 'feminist' (I use that term loosely as I consider myself a feminist) reasons.

http://isisthescientist.com/2011/08/23/your-home-birth-is-not-a-feminist-statement/


----------



## MoneyGal (Apr 24, 2009)

Wow, you really love those U.S. sources of info, eh? BTW in Ontario home births are medically supervised. They're even covered by OHIP! (That U.S. data isn't comparing the same thing - those are medically-unsupervised births.)


----------



## MoneyGal (Apr 24, 2009)

MoneyGal said:


> Wow, you really love those U.S. sources of info, eh? BTW in Ontario home births are medically supervised. They're even covered by OHIP! (That U.S. data isn't comparing the same thing - those are medically-unsupervised births.)


p.s. You can even have a birth IN A HOSPITAL without medical intervention!


----------



## andrewf (Mar 1, 2010)

MoneyGal said:


> There isn't good data on this point for Canada (and for what it's worth, that source appears to be totally anecdotal).
> 
> The data for Canada tells us that, for people with mortgages (i.e., homeowners without a paid-off home), 67% had purchased their homes in the 10 previous years (2008 data, from here: http://www.statcan.gc.ca/pub/75-001-x/2011002/article/11429-eng.htm).
> 
> ...


Wouldn't a good estimate of average holding period in years be [# of households]/[sales rate per year]?


----------



## MoneyGal (Apr 24, 2009)

[shrug] I just know that the Survey of Household Expenditures (which is where the StatsCan data, referenced above, is from) doesn't ask this question. If you assume that people with and without mortgages sell their properties at the same rates, and you have the sales data, you could come up with a guesstimate.


----------



## andrewf (Mar 1, 2010)

Well, you incur the transaction costs whether or not you have a mortgage (realtor fees, LTT).


----------



## BlackThursday (Apr 25, 2011)

andrewf said:


> Wouldn't a good estimate of average holding period in years be [# of households]/[sales rate per year]?


No, it would not.

I would recommend some research. Read this article about the difficulty in coming up with a reliable average.
http://www.nahb.org/generic.aspx?sectionID=734&genericContentID=110770&channelID=311

Here is a quote:


> In order to calculate a true average, it would be necessary to begin with a representative sample of people buying a home in a given year, and then track them year after year until the last one moves out. Information has not been collected in a consistent manner for a long enough period to produce a data set like this.


----------



## none (Jan 15, 2013)

BlackThursday said:


> No, it would not.
> 
> I would recommend some research. Read this article about the difficulty in coming up with a reliable average.
> http://www.nahb.org/generic.aspx?sectionID=734&genericContentID=110770&channelID=311
> ...


You need these data to know the exact quantity a sample using a censored model estimate would be more than sufficient for almost all purposes.


----------



## andrewf (Mar 1, 2010)

BlackThursday, I think the method I suggested is reasonably sound and unlikely to deviate greatly from an estimate calculated in the manner you suggest. It would be better to use a long term average # of transactions per year.

Mean is independent of the distribution. To get distribution (for median, stdev, etc.) one would need to gather data in the manner you suggest. Of course, what I suggest is doable without a million dollar research budget .


----------



## Jungle (Feb 17, 2010)

We are making a bet against our mortgage rate of 3.0% fixed and using extra cash flow to max tfsa and rsp. I've only increase one mortgage payment by 15%, where as in the past when we were paying 5.1% interest, we were doubling payments and making lump sums. At the time, we paid off half the mortgage then dumped it back in the stock market over 2-3 years ago. We'll see how it works out. 

Once mortgage rates go back above 4-5% or so, I will stock contributing so aggresively to tfsa and rsp and use cash flow for double payments. 

Our tenant is also paying down the mortgage on our rental, so we will be uisng that equity to pay off our mortgage too.


----------



## none (Jan 15, 2013)

Jungle said:


> We are making a bet against our mortgage rate of 3.0% fixed and using extra cash flow to max tfsa and rsp. I've only increase one mortgage payment by 15%, where as in the past when we were paying 5.1% interest, we were doubling payments and making lump sums. At the time, we paid off half the mortgage then dumped it back in the stock market over 2-3 years ago. We'll see how it works out.
> 
> Once mortgage rates go back above 4-5% or so, I will stock contributing so aggresively to tfsa and rsp and use cash flow for double payments.
> 
> Our tenant is also paying down the mortgage on our rental, so we will be uisng that equity to pay off our mortgage too.


I believe this is the financial optimal way to do it.


----------



## Amanda (Apr 3, 2009)

My husband and I are 30 and 28 years old, and recently paid off our mortgage. Its such a great feeling knowing that we could quit our jobs tomorrow and start doing our "dream job" that may pay much less. (We wont be, but its nice to know that we could)

We are now in the process of saving up in a High interest savings account and doing research into what we would like to do with our money investment wise once we have enought knowledge.

I know its partially psycological, but the feeling that we dont have to worry about paying our mortgage every month is wonderful.


----------



## Ponderling (Mar 1, 2013)

This may not work if you don't have a good chunk of money in your RRSP, and a modest mortage, but here is what I did a few years back. 

A self directed mortgage. No one publicizes these things, becouse no one other than you stands to make money on them. They can be a most worthwhile investment for you though in the right circumstances.

It took about 2K of fees and dealing with my lawyer to guide me on the sort of mortage I wanted to write for my rrsp self.
I wrote it to pay the highest 5 year closed rate any commercial bank was offering, but kept generous prepayment clauses. 

I sold asset in my rrsp to raise the needed cash to buy out my bank mortgage. I ended up with the mortgage in the beginning being about 60% of my RRSP at the time, but through maximizing RRSP contributions and reinvesting mortgage funds quickly got that doen to under 40% in a few more years. 

I transferred my bank held mortgage to a trust acount with the trust company arm of the same 'bank'. 

The trust arm would take my monthly mortage deduction and transfer the funds into my rrsp account at the brokerage arm of bank.

I did this in 2004 when bond holding stopped returning any meaningful amount. 
Housing was not as poised for a correction at that time as I think it is now. 

I paid it off in 2009 when the amount of the outstanding principal got small, and the fees of about $300 per year and $20 per month of the trust company began to put an excessive drag on the returns. 

As funds got paid on the mortgage I could put them to work within my RRSP investing them in other defensive assets.


----------



## Eclectic12 (Oct 20, 2010)

Ponderling said:


> This may not work if you don't have a good chunk of money in your RRSP, and a modest mortage, but here is what I did a few years back.
> 
> A self directed mortgage. No one publicizes these things, becouse no one other than you stands to make money on them. They can be a most worthwhile investment for you though in the right circumstances ...


"No one publicizes" seems a little harsh considering there were newspaper articles about it twelve plus years ago. With this age of internet searches - a yahoo search for "put mortgage in RRSP" reveals articles from 2005, including CC's article from 2006. 


Congrats on what looks like a good move for you.


Cheers


----------



## Echo (Apr 1, 2011)

@Ponderling - the lender is still making some money from this deal because they'll charge a mortgage admin fee and an RRSP admin fee (maybe up to $500 per year)

Some good discussion in the comments here - http://www.boomerandecho.com/pros-and-cons-of-holding-your-mortgage-in-your-rrsp/


----------



## Ponderling (Mar 1, 2013)

yes, I had a SDRSP already, so that was not the issue.

Annual trustee fee of about $185, in 2006, and about $19 per month charged for fund transfers and updating amortization as we went. 

When the principal amount got too small the fee drag got proprtionately too large, and we prepaid to discharge the thing when the princpal fell under 30K.


----------

