# Mortgage payoff or not ?



## sajjad_er (Feb 1, 2015)

Hi, just looking to get some discussion / advice about whether to pay off mortgage. 

I currently owe a little bit more than 200k on the house and the 5 year mortgage comes to an end middle of next year. I am hoping to pay it off completely then but with the low rate I am second guessing myself. Of course investing seems lucrative but I can also start investing once mortgage is paid off and have that peace of mind. I am 33 and the house is worth about 450k in current market.

What do you think ?


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## TK.61 (Mar 27, 2012)

Pay it off then use the smith manoeuvre to invest.


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## Just a Guy (Mar 27, 2012)

I think you should look through the real estate thread...this question gets asked about once a week on here and has been answered many times...in fact I think this discussion just finished up yesterday or the day before, so a similar discussion shouldn't be hard to find.


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## My Own Advisor (Sep 24, 2012)

We currently have a mortgage as well...hopefully done in a few more years. 

Even with these low rates, we are putting lump sum payments on our mortgage since we believe the debt-free component of a financial plan is huge one.


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## amitdi (May 31, 2012)

Lets simplify what you are comparing - 
1) Mortgage Payoff. Return: your current mortgage rate. Risk: 0

2) Invest. Return & Risk depends on assets you choose

I think you should leave other scenarios out of the equation to avoid analysis-paralysis. If you are a long term equity investor, then I recommend not to payoff the mortgage as the expected return is better than mortgage rate.


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## Cal (Jun 17, 2009)

Do both, pay off mortgage, get HELOC, invest. Put that equity to use.


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## CharlesF.Donahue (Jan 7, 2015)

Pay it off and use that mortage for your investment. Now the market price of that moratage is high, so that you can get more benefit by this investment.


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## 1980z28 (Mar 4, 2010)

My last mortgage was at the age of 30,mortgage free for about 24 years

IMHO pay it in full,great for family and your future,can get a LOC secured to the house if needed


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## My Own Advisor (Sep 24, 2012)

@1980, mortgage free must feel great!


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## 1980z28 (Mar 4, 2010)

My Own Advisor said:


> @1980, mortgage free must feel great!


First house was 69k


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## newuser (Sep 16, 2014)

Freedom from mortgage also allows you the freedom to choose the type of work you accept. You unplug yourself a little from the "system" and it removes a bit of fear from your employer since they don't have such a tight leash on you anymore.

The people that are plugged into the system at my office seem to work that much harder than I have to.


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## My Own Advisor (Sep 24, 2012)

You are reading my mind @Newuser.


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## Letran (Apr 7, 2014)

I like having mortgages :cower:

I THINK it is more of a comfort level and a sense of security in your HEAD.

When I bought my house, I vowed to pay it off in 5 years

Today, 7 years later I still owed 300k (I started with 400k) on it but at the same time period I accumulated 600k in liquid investable assets half being non-registered

For me, having a paid off mortgage means that there is at least 800k in the home equity sitting doing nothing.

Yes you can pay and borrow against it (isn't that the same thing as having a mortgage anyway) BUT I'm not really a big fan of turning them to HELOCs either. for two reasons, HELOCS will show in your credit bureau, (not much difference now though because the mortgages are also starting to appear in your credit bureau in the last few years also). secondly, HELOC's interest rate are higher.

I personally don't like paying down my mortgage first. Such low rates I have always convinced myself to invest first. NOW there are three caveats in doing this

1. Discipline: that the money that you are not paying down your mortgage does go to a "non-spendable long term" investments.
2. You got to watch that on average your investments is doing better than 3% or whatever your mortgage rate is. If you CHOOSE mortgage rates that are higher than 3% THEN maybe you should pay your mortgage down instead. 
3. During the 2008 Recession and a few years after that, I did WISH I paid my mortgage instead. :hopelessness:


I'll also tell you that my wife and I come from completely different perspectives.
She want's the house paid off and hates any debts, I on the other hand will deal with 6 different banks trying to milk them for as much as I can borrow from them. 

I DID have my previous house paid, IT IS a GOOD, CAREFREE feeling. But then again I think there is where MY problem lies.

Having DEBT,Is a DEBT, which creates PRESSURE for me. That pressure in turn motivates me to WORK HARDER and find ways to MAKE MORE. 

Oh well, to each his own. just my 3 cents.


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## Plugging Along (Jan 3, 2011)

I have changed my views over the last few years. I used to pay extra into my mortgage, and invest. I didn't see the point of paying off more of the mortgage when I could get compounded gains.

My views change in 2009 when my spouse was laid off, and I was on mat leave. I reduced all my mortgage payments (we have multiple properties), and it was tight for that year living at 18% of our normal household income. Once thiNgs returned back to normal, we decided not to catch up as much on our rrsps, and focus everything on our mortgages. We paid off the two that are not tax deductable a couple of years ago. The. We had extra money again, and started putting that into our tsfas, and rrsps again. We did lose a couple of years of good returns, however it was the best choice for us.

How come? Even though I could have invested more, we are debt free. My spouse was just laid off again last month. Though it's not fun being down to one income, without a mortgage I not nearly as stressed as before. My salary covers the operating expenses easily, and I know my family will not drastically suffer, and we won't have to go into debt.

I know some people say just take the money that you had invested and use that. Ironically, we have a very large position in Oil and gas stocks, and gold, so those have been at a low for us. 

I think when looking at pay off your mortgage vs, invest one should look at more than just the rates. It's a risk tolerance piece too


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## Karen (Jul 24, 2010)

I loathe the thought of any kind of debt - I pay my bills online the same day that they arrive, so I can always know that I'm completely debt free - so the day I paid off my mortgage in a lump sum with money I had made from an employee stock option was one of the best days of my life. I love the thought that I don't owe anything to anybody, and I would certainly recommend that feeling to anyone who has a few dollars to spare!


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## My Own Advisor (Sep 24, 2012)

I think mortgage paydown or not is more than a math decision....

It's about risk that is difficult to quantify since the future is always uncertain. In this sense Letran, it is about security.

We want our mortgage killed not only because it's a liability, but also because it will provide freedom when it comes to work. We need our jobs now. When the mortgage is done, we'll have the choice what we want to work at, how for long, and when. This will provide us with greater flexibility when it comes to our financial future.

$600k in invested assets is very, very good. Kudos. I hope to get there in a few years.

For us, paying down debt while investing is the right approach for us. These low rates are actually a perfect time to have debt and pay it back. It's cheap. 

I would go further and say whatever your mortgage rate is, you need to add 50% to that, and THEN that's the rate of return you absolutely must get in the markets to "get ahead" given you pay your mortgage with after-tax dollars. 

In closing, we try and take a balanced approach: lump sum payments, then TFSA, then RRSP. I know this is not for everyone but it I believe it's working for us.


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## Just a Guy (Mar 27, 2012)

Just to play devil's advocate, I personally think it's a personal choice, I've lived with a mortgage, I've been debt free for several years, I've been injured during that time and lost all income for several years, now I have a moderate amount of debt relative to my holdings...

Of all these situations, the one I recommend the most is to not fear debt, if it's properly used and backed by plenty of assets.

When I was injured and lost everything, being debt free was of no benefit other than it allowed me to go into debt. It was at this time I turned to investing to develop a passive income (real estate, dividend paying stocks, etc). None of that came overnight of course, but I was smart enough to start getting a HELOC and investing within weeks of getting hurt before the banks would say "no, you have no income". 

The debt is what saved my butt. Of course I only bought good investments (I was probably very lucky) and, within a few years, had replaced my lost income and started paying off the debts I'd accumulated, while increasing my holdings...

Debt has given me more freedom and security than I could have ever dreamed of...every month I have money coming in from multiple, truly diversified streams (not just stocks and bonds, but businesses and real estate). 

Today, even though I'm no where close to being debt free, my liquid assets are more than enough to cover my debts should the need arise, but that's unlikely as all my debts produce more than enough income to cover their debt servicing and still provide me with a good income.

Used properly, there is nothing wrong with a tool...say an axe. In fact, it's quite a valuable and necessary tool. In the wrong hands however, it can kill people, so many fear it.

Think of debt the same way.


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## Plugging Along (Jan 3, 2011)

I am not disagreeing that dbt can be use appropriately. I am personally ok with debt when the cash flow from the investment covers the debt itself. I have rentals that I have mortgages on, that cash flow positive. However, The rentals would cover the mortgage on my main house (if I had one). 

If the ops investments will cover the mortgage on his home, then go for it. If not, then he need to see what he is comfortable with.


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## namelessone (Sep 28, 2012)

I love having Variable rate mortgage! In fact, if they can lend me as much as possible, I'll happy to take them.
Personally, I am not worry about having a mortgage and think that use all my investable asset to pay it off is a bad idea. 
My mortgage interest cost is 2.1%. My target investment return is 7 to 10 times of that cost. If I keep large portion of my investment in GOV bond, it's like cash and pays enough interest to offset the mortgage interest rate. Effectively it's like I already paid off the mortgage amount equivalent to my bond portion but it can be deployed in high quality value stocks any time and generate massive return in short period of time. 
If I put all my investable asset to pay off the mortgage ASAP, what if I lose my job? I'll have nothing to pay the monthly mortgage payment,food,shelter, electricity, heating. Can i keep my house with 50% equity but I can't make monthly payment? Maybe but it's risky situation IMO. Think of a person as a business, investable asset is like short term asset and mortgage is like long term debt in a business. If a business put all their current asset to pay off the long term debt, it'll have problem running the business. 

If I didn't invest any money during the past 5 years, I can use that money to pay off 30% of the mortgage but I invested.
As of now, my investment gain can pay an extra 35% off the mortgage! That's 65% of the mortgage. 
Interesting stats: 
Investment gain in 2013 equals 14% of my original mortgage amount.
Investment gain in 2014 equals 14% of my original mortgage amount.
Investment gain in 2015 Jan to Feb equals 4% of my original mortgage amount.


To me paying off mortgage with prepayment is like a forced saving account and there are two ugly ways to take out the saving: sell the house and downsize or take out a HELOC loan at 4%.


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## Plugging Along (Jan 3, 2011)

I actually didn't think of the perspective of having still having a mortgage if you put all of you investable assets in. For me, it was alway a decision of having less investments but NO mortgage. If I still had to have the mortgage, I would answer differently.


I would rather have very little investable assets, and no mortgage, than a small mortgage and no investable assets.


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## Islenska (May 4, 2011)

Just hated having personal debt, so when my mortgage was put to bed it was a good feeling

With todays interest rates probably doesn't matter but beware the black swan out there

Being debt free gives you a boost!


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## piano mom (Jan 18, 2012)

We have been careful not to buy too expensive of a house. Our biggest mortgage was for $128k for our first home and we managed to pay that off in about 3 years thanks to 2 incomes. Our second (current) house was bought with $66k mortgage and that was paid off in over a year and with 1 income. That was almost 10 years ago. As soon as the last mortgage was laid off, I became restless thinking of the home equity just sitting there and our now extra cash lying around. I suggested to my husband to borrow and invest. I think I needed to have a goal. Being debt free was just too boring for me. We started small borrowing $50k, then another $50k, $100k etc. All the time, our extra money is paid right back into the heloc at prime less 0.85. I think it has helped us get to where we are today. Up until now, we take opportunity of market dips to add to our portfolio. But recently, we have decided enough is enough. Our goal now is to have the heloc debt paid off before he retires in about 7 years, using his income, our rental income and dividends. If we have to, we will sell some holdings to achieve this goal.


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## raceryzf (Feb 18, 2015)

One of the best feelings and positions in life is to be financially free. Financial freedom found from building sizable savings and being debt free can happen at any age with the proper planning.

One of the biggest questions you’ll face on your path to financial freedom is whether or not you should pay off your home mortgage. There is no black and white answer for everyone as the answer depends on a variety of variables, as with most financially related questions.


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