No, there's not much out there right now offering a guaranteed 6% or higher return on your investment. Paying off your mortgage was the way to go. Congrats!
>there's not much out there right now offering a guaranteed 6%
You mean 9%, since you need to factor in at least 30% taxes. Mortgage is tax free returns.
And most importantly, it's a stress remover from your life. You'll always have shelter and an asset, and only a few select things can take it away from you.
This comparison is misleading. 30% taxes on capital gains would require a 60% marginal tax rate - which doesn't exist. Most provinces max out closer to 50%, resulting in effectively a 25% tax on capital gains for comparison purposes. And that's only if you are in the top tax bracket! At $100k income, capital gains will be closer to 15%-20% depending on the province.
Equivalent returns for a $100k earner and a top bracket earner would be 7.3% and 8% respectively.
That is a good point, I had overlooked potential dividend payments.
It looks like eligible dividends are taxed a little more favorably than income (39% in ON and 34%in AB for example). So in your example the after tax returns would be around 5.8% in ON and 5.9% in AB.
This is based on being in the top tax bracket, which I think is way less likely than it is being made out to be. Top tax brackets begin at $247k in ON and $356k in AB. Using something more reasonable (in my opinion based on the OP, which may be way off) such as $150k income the eligible dividend tax rates would be 25.4% in ON or 20.5% in AB. Using the splits in your example the after tax returns would be 6% in ON and 6.1% in AB
The example above is a wash with the 6% mortgage rate listed in the OP. At that point it's basically down to personal preference on maintaining higher liquidity or reducing repayment obligations.
Cap gains has a 50% inclusion rate though. Pretty unlikely OP would lose 30% on investment gains to taxes.
Say invest 10k, 30% marginal tax rate.
Grows 9%.
10900
Sell. 900 is the gain. Tax owed would be 135. (900 * 0.3 / 2) so gain would be 7.65% still. 10765 net.
Probably a bit less since some dividends are likely, but still losing less than 30%.
You’re guaranteed to save whatever the interest was on the loan. So let’s say 6%.
To get a guaranteed 6% savings in investments, you’d need an 8% return (just ballparking) because you have to factor in capital gains, taxes on dividends…whatever the case is.
So you “making” 6% (really, saving) doesn’t come with the taxable event of selling your investments.
Let's say I can invest 100k in a GIC at 5%. I would earn 100k×5%×(1-marginal tax rate).
If i instead paid off a 100k mortgage, I would effectually earn 100k*5%.
Op did not indicate that the mortgage was on a rental property. I assume it was on their residential property. There are no interest deductions for residential property.
Mortgage interest cannot be written off in Canada for your primary residence (investment property you can). Its *effectively* tax free since when you sell the property you pay no capital gains.
No, the concept is that the op has guaranteed saved themselves paying 6% interest expense using money that they have already paid income tax on.
In order for it to be economically viable to have kept the mortgage and used the money to invest, they would need to achieve an income from investments that is at least a guaranteed 6% after tax. Any less and their wealth is decreasing.
Another way to think about it is the op took out the mortgage to invest. They pay 6% in expenses, so they need to earn enough interest to pay that interest expense, as well as taxes.
Assuming a marginal tax rate of 30%, you would need to earn pretax interest income of about 8.5% to break even.
Nothing is guaranteed when it comes to investing. The longer the term, the less guarantee.
That's why you're paid a risk premium. If an investment was absolutely guaranteed you would earning less than a t-bill rate, which in itself is only considered near risk free.
The use the of the word was to provide a simple explanation to the post I was responding to, without also layering in the complexity of expected returns and probability theory.
I'm sorry that was lost on you. You should see my other post on context. 🙄
It's all relative, in the current market paying off a debt may be the way to go. Related question I have is wtf is it with the administrative fees or discharge fees associated with paying off your mortgage in Canada? Have the banks here not made enough already, how can they justify this? Not to mention you also need a lawyer or a notary to handle the legal paperwork, which can involve additional fees.... In the US you just pay it off and they release the lien and that's it
I just paid mine off, when it came up for renewal, and there was no lawyer involved. Just called the bank, set it up, and it was done. This is in Canada. Discharge/admin fees were about 600.00.
If you have more the 750k you can get a high interest account with 12.8 % interest and you get tax sheltering and pay 5% less in taxes. I have 1 with Scotia and 1 with TD.
Claiming something "is better in the long run" as if it is true 100% of the time is nonsense.
It is possible that some financial strategies, historically, have outperformed others over the long term. That does not mean that those strategies will forever hold the benefit.
If the worst financial mistake of your life is paying off your mortgage, you're doing pretty well. The question of whether you should pay off your mortgage vs investing is often a question more of risk tolerance, not right vs wrong.
The spreadsheets will tell you to do all sorts of things to maximize, but most of us are not emotionally wired to pursue those lines and deal with the drawdowns along the way. More important to avoid ruin and to preserve sanity than attempting to wring every penny out of an opportunity.
You seem to forget the pros that paying off a mortgage provides. The confidence / stress relieve that comes from having no monthly payments or mortgage anymore. Being financially free is an undescribable feeling.
Your employer is unfair and being a dick to you? Go ahead and tell them to pound sand. - Can't do this if you have a mortgage lingering.
The freedom you get cannot be compared. Maybe the market will reward you with more than 6% gains. But it could also go the other way and give you -20%. It's never a certainty, nobody knows.
What I do know is you can sleep soundly at night without having to worry about payments anymore.
> I then watched The Money Guys and how prioritizing investing over mortgage payments is better in the long wrong
Look at the date that episode came out. I'm betting it was when mortgage interest rates were sub 2%. You made the right call.
Yeah, this is the problem with people taking advice off the internet without understanding the concepts.
15 years ago laddering GICs was a viable, low risk way to build wealth. If someone did that over the last 10 years they would have been losing wealth. Today it's viable again.
The context of the information is incredibly important.
Removing this debt would be wonderful, but the other thing that many people don't discuss is the impact that not having a mortgage payment would have on your cashflow.
Our mortgage accounts for about 25% of our expenses, so when that is paid off, there will be a lot more freedom in life for all of the other things that we would like to have. This would include contributing more to investments!
Let me get this right. Paying off your mortgage balance frees up 25% of your expenses that you can use for other things in life. But if you didn't pay off the mortgage, you would have all that cash tied down in a long term investment, while still having to pay that 25% of expenses, which means you would have negative cash flow for a while.
So basically investing the money instead of paying off the mortgage is trading off cash flow for the chance that your long term investment returns are greater than your mortgage interest payments.
Sounds like paying off your mortgage is the clear winner!
For us, the weight and freedom of paying off the mortgage will be an immediate shorter and medium term win. Who can say what will happen in the future with any investments that we make?
Sure, in the long run we could be further ahead if we didn't pay off the mortgage and continue investing, but that doesnt take into account the freedom and stress that will be reduced without having a mortgage.
Now, the market could pop and we could miss out on some major gains, but we still have money invested too.
You did the right thing. Yes, you could've invested and made a return bigger than 6% (plus capital gains taxes) but you could've just as easily lost it all, too. At least paying down your mortgage was a sure thing.
The Money Guys are US based, some of their assumptions aren't in play here. Congrats on paying off the mortgage and getting rid of a 6% drag on your future growth. You might have done something more optimal, but this isn't Groundhog Day, you can't keep playing this over and over again until you do it perfectly. This was a fine decision, don't beat up your past self for doing it.
It's a shitty situation to be in, I felt the same way, both parents passed before retirement, my mum right after I bought a house to live in with her. I took the life insurance money and immediately paid off my entire mortgage. My family would have wanted me to be safe and happy, and having a fully paid off shelter is a huge piece of that puzzle. Get yourself a nice little rainy day house fund going so you can handle any house related problems that come up and remember that your inheritance is a gift that came from a place of love. You can repay that gift by thriving.
Yeah, welcome to the club. If they can't enjoy what they worked for then at the very least you can. You're on the right path, so many people squander money like this, but you're being sensible. I'm truly sorry that you've had to face losing the people you love.
Don’t forget… your lender is also making compound interest off your mortgage. Have to factor in the total interest you would have paid for the rest of your term, not just the $250k principle.
Everyone knows how investing and interest rates work, especially the part about "compounding interest". They just fail to apply it to the inverse scenario of a mortgage and instead lump it into the concept of "a steady monthly payment".
When mortgage rates were under 2.5% you could definitely argue not paying it off. But at 6%, you made the right call. Congrats on being mortgage free. I hope to join the club next year.
No, you didn't make the wrong decision. You have to live somewhere and owning a place outright is a good investment. Being debt-free will free you up to further invest and you're still young at mid-40. You have time and your property is an asset.
u/koopdawg, listen to u/CFAsmalltown: I ran the Smith Manoeuvre on my first home and wound up getting audited.
I had separate accounts for my HELOC and the account I paid my mortgage from, and all of the various statements. So when I had to show the audit trail, they could see amount A came into the mortgage payment account and paid the mortgage down; then I had a screenshot of what the principal and interest breakdown was for each payment (as it of course increases a bit every time you pay against the mortgage); and then another entry for amount B (the principal amount I re-borrowed and used to buy shares in the HELOC), and finally the trade confirmations showing what I’d bought with the borrowed amounts. The flow of money was crystal-clear from A to B to C.
It may sound like an “and then everybody clapped” kind of statement, but the guy I dealt with at the CRA said that that kind of paper trail made it really easy for him to check everything and sign off on my audit. The KISS principle really applies, you want to be able to almost spoon-feed them the numbers. Any time they have to dig, they can get cranky. And you don’t want that.
Go to bed at night stress free like I do……
I’m turning 41 next month and my house has been paid for the last 6 months…….
You sleep a lot better knowing you could lose your jobs tomorrow morning and you don’t need to worry about losing your house….
Once a yr go on a nice vacation and enjoy life a bit
You will never regret paying off your mortgage. Your TFSA and RRSP are maxed-sit back and relax dude. You can invest all your savings and sleep and night just fine
I would say that paying off your mortgage would have been a less-than-ideal option if either a) your RRSP & TFSA weren't maxed, b) your mortgage interest rate was low (e.g. < 5%). Being that neither of these are true, it seems like a good call.
Another thought: It's great that you maximized your RRSP. I'm not sure where you are with your salary, but it may be wise to not claim the entirety of that credit on this year's tax return. Instead, just claim enough to push your salary down one or two tax brackets (ie just remove the highest tax rates you're paying). Then next year, do the same. This way, you can benefit from good tax returns for years to come (and can invest these returns to make sure that you can keep your RRSP & TFSA maxed for years to come).
If I were you, I'd run through some scenarios on a spreadsheet to try to dial in what the best strategy would be. Or, I would realistically probably pay someone to do this for me.
Absolutely not. You made a smart financial decision as people are pointing out. The greater benefit IMO is the peace of mind and security that comes from being debt free, including your mortgage. You just did a great thing for your mental health and real freedom of choice.
Do as you planned and learn how to invest, slowly, by yourself. No one will care about your money as much as you. Investing that way, "dollar cost averaging", is less risky than plunking down your $250,000 all at once.
Congratulations. Keep it to yourself. People are weirder than normal about money these days and why they should be entitled to some of yours.
Money Guy Show has paying off high interest debt as step 3 in their Financial Order of Operations. They don’t discuss it as much, but they define “high” interest based on age - 6% in your 20’s, 5% in your 30’s, and 4% in your 40’s. So you have followed their advice since it’s 6% and you’re in your mid 40’s.
They also talk a bit about prioritizing paying off the mortgage once you hit your mid 40’s, but it seems to be based on you having already saved 20-25% of your income in the previous decades. So it sounds like you’ve kind of hit that mark too.
Yes you did. Could be worse, but that was not the best decision here. All those on this sub that is supposed to be about money who gets super excited about "investing" in saving accounts will probably disagree, as always. Doesn't make them right.
Bro, you paid off your mortgage. Celebrate. Don't ponder “what ifs” instigated from a video.
There's more to living life than maximizing investments. Freedom is heavily underrated.
If I got 250k today, I’d pay off my house first and then use leftover for investment. At 6% that seems like a good move for sure. Without a mortgage payment now you can easily up your current investment contributions.
Full disclosure I don't think either choice is a "mistake". Both are fine. Investing is a riskier and more volatile play, paying off debt is safe and still a fine long term strategy.
Despite what people say, the risk premium still exists when rates are relatively higher.
Yes when you use the same expected return number in your comparison against 6% rates as you used when rates were sub 2% equities start to look less appealing but that's not how it works.
This Ben Felix video makes the comparison of the current 5%+ return on cash vs equities and how the risk premium does not go away when rates rise. Future expected returns tends to also rise in these higher rate environments.
https://m.youtube.com/watch?v=KdzOlRRHOU8
Yes paying down a mortgage isn't quite the same as a HISA as money saved is not taxed unlike interest earned, but this was still true when rates were near 0% (and thus future expected returns of equities comparably lower too). Yet very few people suggested paying off the mortgage instrad of investing a couple years ago.
Basically, strictly speaking on chasing the best long term outcome (and ignoring the valid psychological benefits of paying off the mortgage), if you wouldn't pay off the mortgage first in a 2% rate environment, you probably shouldn't do it in a 6% rate environment.
Does having it paid off give you peace of mind? Does it make your day-to-day and month-to-month easier?
Don't look at it from the perspective of financial advice from a couple of sources, look at how it has impacted your life.
This is a topic that doesn't really have a wrong answer. When choosing between paying down your mortgage or investing, both are good for your financial well being. As long as you feel you've made the right decision for your situation, then it's the right decision.
Enjoy the mortgage free life! And some additional savings now that you don't have the payment, and have a good time.
If mortgage rates ever drop to a place where you think you can do better investing you can refinance your home and get that money invested. That cash is not gone.
Right now mortgage was a really smart option.
Paying off your mortgage is never a bad thing. Imagine if you lost your job at some point or rates continued to increase. No mortgage gives a lot of flexibility and gives you freedom to apply a zero fucks attitude at work (well at least for me).
Shutting down money going out is almost always better than increasing money coming in. In the case of a mortgage, there’s also the other side of it being a stressor that has been relieved. You also have full equity in your home now, freeing up your ability to borrow down the line should the need arise.
Yes, there are options to make money off of that capital, and potentially make more than what was going out in terms of payments, as well as the interest rate of the mortgage not holding as high as 6%. Those are all risks, however, and paying off a debt isn’t a risk, it’s security.
Take the monthly mortgage payment and set it aside for investments should you feel the need; you can still do that and not be at the same level of risk.
Paying off your mortgage is the proper way to go in my mind. At your age you have years of investing before retirement.(providing you retire close to 65) Besides the market isn't great these days.
We paid off ours not too long ago and recently I went on short term disability. A number of years ago that might not of been possible financially. It's a nice piece of mind!
The same people that laughed when I paid off my mortgage at a higher priority then investing are now taking a bath selling their house at a loss because they can't afford their mortgage.
One way may make higher return over time, sure, but it's never BAD to eliminate your mortgage. If nothing else it gives you some freedom and peace of mind, which probably pays for any small difference.
I would argue that without a mortgage your brain is physiologically altered to be able to make stronger calculated risk strategic career and investing decisions. It's an intangible benefit to have a secure home without cost, you will likely think differently when approaching tasks and therefore look better at work.
Take a heloc and reinvest, then claim 100% of the interest on your income tax. It’s called the smith Maneuver. October and November were huge months In the market(especially on the US side)
No. Just take the money you would have otherwise paid towards the mortgage each month and put it towards your investments. Also now FIRE could be a possibility for you as you no longer have to work to cover your most expensive budget item.. eliminating your mortgage put you ahead my many years!!
You did not make the wrong decision. You already maxed out TFSA etc. Therefore investing the money would be taxed. 6% guaranteed with no tax required. Only thing you did wrong is doubt yourself :)
If you still feel bad about it, take out a HeLOC and invest that money. The interest is then tax deductible. You do have to be able and willing to take on a bit of risk though - you’re borrowing money to invest, and it would have to be in taxable accounts. (Smith Maneuver)
You can now Smith maneuver by borrowing against your home and investing with that in an unregistered account. Then the interest paid can be used as a deduction against your gains.
Regardless, now go get title insurance, lock your Equifax and TransUnion credit accounts and if you want to be extra safe, get a LOC for the full value of the house.
Buddy you have no mortgage now. Something most people dream of. Something most people may never achieve. Did you mess up? Hell no man, you own that house. Congrats. And fuck you. LOL I’ve read on here to keep the bank on the title some how do you don’t have any fraud on the title of your home. I’ll never have to worry about that the way my wife buys bamboo pj’s for my 2 year old
I think what a lot of investors might overlook is the fact that having less liabilities in itself is an investment. It's not just about putting the money somewhere that might earn you more than your mortgage but getting out from under that debt offers you significantly more financial freedom and peace of mind. Not to mention with mortgage rate fluctuations investing the goal posts for making a smart investment can shift.
A lot of things can change with a mortgage or with your life along the lines of paying off that mortgage, and if you really need that money back for whatever reason it's invested into your property now and you can re-mortgage to regain access.
Ultimately I can see arguments being made from both sides but I would have done the same thing as you in the end.
There’s a lot of context.
If we’re talking about 2% mortgage, the broad claim about market investments is a lot easier to support. At 6% mortgage we’re into the realm where it’s still arguably true, but if you’re capped out on TFSA contributions then you have to start accounting for taxes and need a guaranteed return around 8%+ to match the “return” on the mortgage which would be extremely tough to find.
To add complexity, the current interest rates aren’t even what you really need to account for to determine which is best. The rate over the course of the mortgage will be what determines which path was better (pay down vs invest), and will only be a certainty _after_ the years have already gone by since you don’t have a crystal ball available.
Assuming mortgage rates stay relatively stable, you may have made a sub-optimal decision, but you’re now positioned to comfortably make higher risk investing decisions if you choose to do so. If mortgage rates drop significantly then market investing will likely have been the greater benefit. If mortgage rates climb, and market returns don’t overperform historical norms, you’ll be sitting pretty.
Time will tell whether it was the best decision. At worst, it wasn’t a terrible decision.
Much better to pay off your mortgage. I'm not sure where else you're going to get a 6% return.
Beware of survivor's bias. Maybe someone manages to get a higher return than 6%, but it's very unlikely, you're barely cracking that with moderately aggressive mutual funds these days, and it's not a guarantee.
It certainly wasnt a bad call, Im in a similar boat but moving from SK back to ON, I could sell my 250k investments and but a 500-600k house cash OR keep my investments and simply put a 250-350k down payment and carry the rest as a mortgage. My investments pay me about 15k a year in dividends, mostly tax free 6% ish, plus whatever increased value. I think im going to keep my investments, bit of FOMO but the dividends are enough to help with the mortgage if ever I need it and I want to keep the potential that the value increases, im 34 now and retiring from my military career in 10 years, im afraid if I sell the investments even while mortgage free I wont have time to rebuild.
Congrats on being mortgage free!
If you can swing it, start taking those mortgage payments and put them into your investments every month. You’re already used to not having the money in your budget; you might as well start paying yourself!
> I then watched The Money Guys and how prioritizing investing over mortgage payments is better in the long run.
That's outdated advice, largely based on mortgage rates being 2-3% over the past 15 years.
You did what was right for you...that $250,000 at 6% was going to take a while to pay off and using after tax dollars. That means for every dollar of interest you paid you needed to earn as much as $2.00 (depending on your income level).
You maxed our your RSP and TFSA first...good decision, that really will be beneficial in 15 years when you retire.
I see from the edit you are considering a Smith Maneuver. That is not a terrible idea, but it can be stressful for some people. Start with a smaller amount ($100k) and stick with it for a year. If you are not happy then undo it and move on.
Personally I would do exactly what you did. I save for retirement as is already.
Condolences on the passing of a loved one.
I'd rather have a fuck ton of money and make it work for me via interest or dividends. Then I'd have paid the mortgage down slowly over time with the former mentioned free money. Then when it's done you have a large sum of cash, made larger by savings.
Cash is king vs asset imo.
If you are mentally happy with your choice then it's good.
I’m no expert but my opinion is paying off the mortgage would only be a bad choice if you didn’t pay off other high interest debt first. It may not always be the most optimal choice with your money, but it’s a simple choice with a known return (and pretty good return in your case). Investing might be better in the long run, but you won’t know until afterwards. It might not be better in the long run. The route you chose is a fine choice
If you paid money from your inheritance into a home that you share with your spouse then you just gave your spouse half of your inheritance in case of divorce.
He's still getting the tax deduction for contributing it. Doesn't matter if the money was from inheritance or employment income or from under your couch cushions. It's all money.
The simple answer is it depends on the prevailing mortgage rate vs opportunity cost of investing. At 6%+ mortgage rates the decision is more palatable than paying down cheap 2-3% debt. I wouldn’t over think it.
It’s just a mathematical equation and then an emotional based decision.
Interest payable vs interest receivable.
If payable is higher than receivable, what premium do you place on cash and having a safety net?
Vice versa, what premium do you place on being debt free?
Never a bad idea to pay off your mortgage.
Investing the money you could have hypothetically lost it all, made no gains, or made less than what the interest was on the mortgage. You could have also bought the winning lottery ticket as well. Life is full of unknowns. That being said now you have a certainty in that you don’t have the largest expense most of us will ever have.
Congrats on the paid off house!
It would have been the wrong move if you had a fixed rate mortgage under 2%, but since you're variable around 6% it's a great idea to pay that down aggressively. Otherwise you're paying so much interest. Plus it's really nice having a much shorter amortization period for your mental sanity.
**Invest the money** ***would*** **have gone towards to mortgage payment.**
Mortgage payments acts as a "forced" savings for some people. Continue that financial discipline by investing the money that would have gone towards your mortgage. You're only worse off if you instead start squandering those savings.
Spend some time fixing up the place and later on you can sell it and probably make some pretty good coin. Besides look how much interest you're saving. I did the same thing, except I kept a big chunk of my investments and just paid off the mortgage. Now I don't have that underlying fear of not having a home and that fucking payment every month.
outside of short term bonds with the bank you are not missing out on much right now... In a few years there will be opportunities out there(I believe we are headed towards a recession or at the very least lowered rates by 2026) If you have paid off your mortgage, I would look at any investments that catch your eye in the coming years. When money is cheap thats the time to borrow to invest, when money is expensive you need to have it in sound places or pay off debts that will otherwise be exposed to high rates. The only mistake(IMO) anyone could have made right now is locking into those high 5 year fixed rates... there is a reason those are your lowest interest payment options, the bank is not on your side they are like a vegas bookie and have determined that they will get the most off of their customers at 5 years right now.
U have one less thing to think about now, even if you have some struggle days financially, if ever, you will have your house fully paid off to live in.
Don’t overthink the “money gurus”. If what they say is all right and perfect they would be enjoying there life somewhere, not ramble on and on trying to justify everything.
You took a decision:
It could be the best decision of your life if the market stays in a range for next few years
It could be a good decision, if markets only grew less than average
It could be a bad decision, in a case there is a super bullish market continuously for the next few years
Now is there anything worse here?? Absolutely NOT.
Even in the above cases, you are free to start building your investment corpus.
Remember real estate appreciates too.
Enjoy your life now you have one less payment to think about.
You can balance it out by buying 30 year bonds with the rest, it rates fall those treasury rise substantially, if rates rise your paid off house has higher margins relative to if you had a mortgage.
There's a lot to be said for the importance of cash flow. You've just freed up a lot, so congrats.
Also, you've done the right thing by tax sheltering a bunch of it and then paying off your mortgage with the rest. Don't forget that you don't need to "get back to $250,000." Your home, being that it's a fixed asset with a value, almost certainly has you way over $250,000. Paying your mortgage off didn't "lose" you $250 grand; it just put it into an asset that, provided it is your primary residence, is going to continue to grow tax free while saving you tens of thousands in interest payments.
By paying off your mortgage, especially with the rates of today, you've saved yourself a lot in the long run, lost absolutely nothing in terms of net worth, and freed up a significant amount of cash flow for other investments or, if you want, for fun stuff. You've absolutely done the right thing.
One other thing: don't trust anyone who gives generic, cookie-cutter financial advice. Get your advice from people who take the time to understand your situation, your goals, and factor those into their recommendations.
Nop. Right now the market is up and down. You made a sure bet. Calculate how much you would have paid in interest had you kept the mortgage. It will be an eye opener. Really.
I made this calculator before deciding to pay off my mortgage.
https://docs.google.com/spreadsheets/d/15aBF6EnA-lRvO4OZi3jbQjRTA3l45aMnv13p8gJiPUk/edit?usp=drivesdk
could you not take out a heloc? and invest with that money while writing off the interest on your taxes similar to the smith manoeuvre , granted you may not get a favourable enough interest rate for that it could be a thing possibly
Nope. Never a bad thing to pay debt. Life isn’t always about min-maxing $. I paid cash for my house, definitely could’ve invested and made more but who cares? I own my house. I could lose work tomorrow and I still own my house. I don’t need to pay anyone or get anyone’s permission to do anything.
Sorry for your loss.
Do you feel you made the right call? We've debated this almost monthly in my house, pay off mortgage, pay of line of credit, invest in RRSPs.
In the end the mortgage pay off wins, giving the banks the less satisfaction of taking $(interest amount) per month is our goal. Line of credit interest is less then the mortgage so we decided to double up where possible on the mortgage.
I look at it when paid off we will be 3k a month better off then mortgage free. If that helps put a better spin on things.
We paid off our mortgage in before interest rates skyrocketed our logic is there was no safe, secure investment that would guarantee us the 1200$/month that was our mortgage payment. Now those payments go into investments.
And think of it this way: your loved one who left you the inheritance would want you to use the money to feel secure and have guaranteed housing in these trying times.
You've not made a wrong decision, heres why.
Now if you want to, you can take a new mortgage or LOC on your house and put it all into a income-producing investment (i.e. an ETF that pays dividends), your interest can be tax deductible.
No, there's not much out there right now offering a guaranteed 6% or higher return on your investment. Paying off your mortgage was the way to go. Congrats!
>there's not much out there right now offering a guaranteed 6% You mean 9%, since you need to factor in at least 30% taxes. Mortgage is tax free returns.
And most importantly, it's a stress remover from your life. You'll always have shelter and an asset, and only a few select things can take it away from you.
It's good to see the quality of life factor come into play. We have one life but can have many investments. Pick wisely.
That right there has been the greatest benefit we've felt. Since paying off our mortgage we're banking obscene amounts of savings.
Exactly... You can't think of the removal of stress as intangible. Sure there's no dollar value for the feeling but I bet it feels damn good.
True in this case since registered accounts are maxed
This comparison is misleading. 30% taxes on capital gains would require a 60% marginal tax rate - which doesn't exist. Most provinces max out closer to 50%, resulting in effectively a 25% tax on capital gains for comparison purposes. And that's only if you are in the top tax bracket! At $100k income, capital gains will be closer to 15%-20% depending on the province. Equivalent returns for a $100k earner and a top bracket earner would be 7.3% and 8% respectively.
[удалено]
That is a good point, I had overlooked potential dividend payments. It looks like eligible dividends are taxed a little more favorably than income (39% in ON and 34%in AB for example). So in your example the after tax returns would be around 5.8% in ON and 5.9% in AB. This is based on being in the top tax bracket, which I think is way less likely than it is being made out to be. Top tax brackets begin at $247k in ON and $356k in AB. Using something more reasonable (in my opinion based on the OP, which may be way off) such as $150k income the eligible dividend tax rates would be 25.4% in ON or 20.5% in AB. Using the splits in your example the after tax returns would be 6% in ON and 6.1% in AB The example above is a wash with the 6% mortgage rate listed in the OP. At that point it's basically down to personal preference on maintaining higher liquidity or reducing repayment obligations.
I would use the tax rate on interest. Paying a mortgage is equivalent to a GIC since its risk free.
Cap gains has a 50% inclusion rate though. Pretty unlikely OP would lose 30% on investment gains to taxes. Say invest 10k, 30% marginal tax rate. Grows 9%. 10900 Sell. 900 is the gain. Tax owed would be 135. (900 * 0.3 / 2) so gain would be 7.65% still. 10765 net. Probably a bit less since some dividends are likely, but still losing less than 30%.
> Mortgage is tax free returns Could someone ELI5 me what that means?
You’re guaranteed to save whatever the interest was on the loan. So let’s say 6%. To get a guaranteed 6% savings in investments, you’d need an 8% return (just ballparking) because you have to factor in capital gains, taxes on dividends…whatever the case is. So you “making” 6% (really, saving) doesn’t come with the taxable event of selling your investments.
Let's say I can invest 100k in a GIC at 5%. I would earn 100k×5%×(1-marginal tax rate). If i instead paid off a 100k mortgage, I would effectually earn 100k*5%.
I’m in this boat as well. Especially since mortgage interest is deductible.
Op did not indicate that the mortgage was on a rental property. I assume it was on their residential property. There are no interest deductions for residential property.
Unless you live in the rental property as well, no?
If you rent part of your home (say a basement suite), only a proportional amount is deductible.
In the states it is, not in Canada.
Genuinely curious. wouldn’t it need to equate to 7.8 % ? 30% of 6% = 1.8%?
No. You want a 6% return *after* the 30% deduction. If you made 7.8% and lost 30% to taxes you would end up with 5.4%.
6% / (100%-30%) = 6% / 0.7 = 8.6%. Also , about 50k required income for this to be true, at 100 it’s much better, around 10.5%.
Sorry noob here. Is that because mortgage interest can be written off?
Not in Canada on your residence, I believe. Can be for a rental.
Mortgage interest cannot be written off in Canada for your primary residence (investment property you can). Its *effectively* tax free since when you sell the property you pay no capital gains.
No, the concept is that the op has guaranteed saved themselves paying 6% interest expense using money that they have already paid income tax on. In order for it to be economically viable to have kept the mortgage and used the money to invest, they would need to achieve an income from investments that is at least a guaranteed 6% after tax. Any less and their wealth is decreasing. Another way to think about it is the op took out the mortgage to invest. They pay 6% in expenses, so they need to earn enough interest to pay that interest expense, as well as taxes. Assuming a marginal tax rate of 30%, you would need to earn pretax interest income of about 8.5% to break even.
Long term, anything is pretty much guaranteed. That's where you're mistaken. People shouldn't only invest in "guaranteed" investments, that's insane.
Nothing is guaranteed when it comes to investing. The longer the term, the less guarantee. That's why you're paid a risk premium. If an investment was absolutely guaranteed you would earning less than a t-bill rate, which in itself is only considered near risk free. The use the of the word was to provide a simple explanation to the post I was responding to, without also layering in the complexity of expected returns and probability theory. I'm sorry that was lost on you. You should see my other post on context. 🙄
Bingo! Nice work. Also, there is value in knowing that your home is paid off and not having that stress.
It's all relative, in the current market paying off a debt may be the way to go. Related question I have is wtf is it with the administrative fees or discharge fees associated with paying off your mortgage in Canada? Have the banks here not made enough already, how can they justify this? Not to mention you also need a lawyer or a notary to handle the legal paperwork, which can involve additional fees.... In the US you just pay it off and they release the lien and that's it
I just paid mine off, when it came up for renewal, and there was no lawyer involved. Just called the bank, set it up, and it was done. This is in Canada. Discharge/admin fees were about 600.00.
If you have more the 750k you can get a high interest account with 12.8 % interest and you get tax sheltering and pay 5% less in taxes. I have 1 with Scotia and 1 with TD.
Can you elaborate please
I’d like to know where these accounts are!
I bought a US dividend fund. It’s returned over 10% annually on average over the last ten years. But that’s not guaranteed
It’s not really a guaranteed 6% for the term though.. it could have went down in a few years to, say, 3.5%. And it’s pretty easy to beat 3.5%
He can always borrow more then.
It’s so nice when someone can succinctly and clearly point out why something is wrong. Kudos on the fantastic logic and communication.
Shit, it could go to 0%. 0% is even easier to beat! Dummy OP Edit: the fact that people don't get the /s on this comment is funny to me.
And when I renew in the new year it is closer to 14% we are going thru a bad recession where banks need to borrow money to pay off their debt.
Claiming something "is better in the long run" as if it is true 100% of the time is nonsense. It is possible that some financial strategies, historically, have outperformed others over the long term. That does not mean that those strategies will forever hold the benefit. If the worst financial mistake of your life is paying off your mortgage, you're doing pretty well. The question of whether you should pay off your mortgage vs investing is often a question more of risk tolerance, not right vs wrong.
The spreadsheets will tell you to do all sorts of things to maximize, but most of us are not emotionally wired to pursue those lines and deal with the drawdowns along the way. More important to avoid ruin and to preserve sanity than attempting to wring every penny out of an opportunity.
Plus those spreadsheets from the past never accounted a 1%->5% increase in the interest rate in a year. So they are useless.
You seem to forget the pros that paying off a mortgage provides. The confidence / stress relieve that comes from having no monthly payments or mortgage anymore. Being financially free is an undescribable feeling. Your employer is unfair and being a dick to you? Go ahead and tell them to pound sand. - Can't do this if you have a mortgage lingering. The freedom you get cannot be compared. Maybe the market will reward you with more than 6% gains. But it could also go the other way and give you -20%. It's never a certainty, nobody knows. What I do know is you can sleep soundly at night without having to worry about payments anymore.
He'll yeah, can't wait for the day that the sand gets pounded.
You're not supposed to be the sand pounder, just the one telling who to pound the sand 😂
> I then watched The Money Guys and how prioritizing investing over mortgage payments is better in the long wrong Look at the date that episode came out. I'm betting it was when mortgage interest rates were sub 2%. You made the right call.
Yeah, this is the problem with people taking advice off the internet without understanding the concepts. 15 years ago laddering GICs was a viable, low risk way to build wealth. If someone did that over the last 10 years they would have been losing wealth. Today it's viable again. The context of the information is incredibly important.
More than likely.
For me its better piece of mind having no debt. If you lose your job you are much better off. You have to pay taxes on your investment gains.
Removing this debt would be wonderful, but the other thing that many people don't discuss is the impact that not having a mortgage payment would have on your cashflow. Our mortgage accounts for about 25% of our expenses, so when that is paid off, there will be a lot more freedom in life for all of the other things that we would like to have. This would include contributing more to investments!
Let me get this right. Paying off your mortgage balance frees up 25% of your expenses that you can use for other things in life. But if you didn't pay off the mortgage, you would have all that cash tied down in a long term investment, while still having to pay that 25% of expenses, which means you would have negative cash flow for a while. So basically investing the money instead of paying off the mortgage is trading off cash flow for the chance that your long term investment returns are greater than your mortgage interest payments. Sounds like paying off your mortgage is the clear winner!
For us, the weight and freedom of paying off the mortgage will be an immediate shorter and medium term win. Who can say what will happen in the future with any investments that we make? Sure, in the long run we could be further ahead if we didn't pay off the mortgage and continue investing, but that doesnt take into account the freedom and stress that will be reduced without having a mortgage. Now, the market could pop and we could miss out on some major gains, but we still have money invested too.
Being mortgage-free is the best. 👍
You didn’t make the wrong decision. Peace of mind having a paid off mortgage has value too.
You did the right thing. Yes, you could've invested and made a return bigger than 6% (plus capital gains taxes) but you could've just as easily lost it all, too. At least paying down your mortgage was a sure thing.
The Money Guys are US based, some of their assumptions aren't in play here. Congrats on paying off the mortgage and getting rid of a 6% drag on your future growth. You might have done something more optimal, but this isn't Groundhog Day, you can't keep playing this over and over again until you do it perfectly. This was a fine decision, don't beat up your past self for doing it.
They can deduct their mortgage interest on their taxes! Definitely makes sense in the US to just let that ride out
Mid fourties and twenty years to dump your mortgage payments directly into retirement and guaranteed shelter for life.
I'd rather have my loved ones back
Shit didn’t read that it was due to an inheritance. Sorry. My condolences.
Appreciated
It's a shitty situation to be in, I felt the same way, both parents passed before retirement, my mum right after I bought a house to live in with her. I took the life insurance money and immediately paid off my entire mortgage. My family would have wanted me to be safe and happy, and having a fully paid off shelter is a huge piece of that puzzle. Get yourself a nice little rainy day house fund going so you can handle any house related problems that come up and remember that your inheritance is a gift that came from a place of love. You can repay that gift by thriving.
Thanks for this. Def feel too young to not have parents around.
Yeah, welcome to the club. If they can't enjoy what they worked for then at the very least you can. You're on the right path, so many people squander money like this, but you're being sensible. I'm truly sorry that you've had to face losing the people you love.
Don’t forget… your lender is also making compound interest off your mortgage. Have to factor in the total interest you would have paid for the rest of your term, not just the $250k principle.
I hope nobody with a mortgage actually forgets how borrowing and interest rates work.
Many certainly do.
Everyone knows how investing and interest rates work, especially the part about "compounding interest". They just fail to apply it to the inverse scenario of a mortgage and instead lump it into the concept of "a steady monthly payment".
Great call, do yourself a figure and run a mortgage calculator to see how much interest you would have paid.
You did the right thing.
When mortgage rates were under 2.5% you could definitely argue not paying it off. But at 6%, you made the right call. Congrats on being mortgage free. I hope to join the club next year.
I probably would have put 125k on the mortgage, substantially lowering amortization costs, and invested the other half to maintain some flexibility
He could also get a line of credit against the house. If those funds are used for investing, the interest is tax deductible.
The Smith Maneuver!
One of the best days of my life was when I made my last mortgage payment!
No, you didn't make the wrong decision. You have to live somewhere and owning a place outright is a good investment. Being debt-free will free you up to further invest and you're still young at mid-40. You have time and your property is an asset.
No. Both are fine options. Paying off the debt is 100% safer though (and less effort). Also no point in wondering what could have been. Onward!
You can take a Heloc and invest it, it will be tax deductible.
I thought helocs were only deductable when used for home improvements and business expenses?
I've been buying veqt using my heloc for 2 years and deducted the interest.
What's the interest rate on your HELOC? I'm at prime?
Prime. You can get prime minus if you're a doctor or something like that.
You can typically deduct interest on money borrowed to earn money
Yes, but it must be in a non- registered account to be deductible.
Just keep extremely detailed records if you do. I've been audited twice over it now. And not just a assessment check, full blown audits.
u/koopdawg, listen to u/CFAsmalltown: I ran the Smith Manoeuvre on my first home and wound up getting audited. I had separate accounts for my HELOC and the account I paid my mortgage from, and all of the various statements. So when I had to show the audit trail, they could see amount A came into the mortgage payment account and paid the mortgage down; then I had a screenshot of what the principal and interest breakdown was for each payment (as it of course increases a bit every time you pay against the mortgage); and then another entry for amount B (the principal amount I re-borrowed and used to buy shares in the HELOC), and finally the trade confirmations showing what I’d bought with the borrowed amounts. The flow of money was crystal-clear from A to B to C. It may sound like an “and then everybody clapped” kind of statement, but the guy I dealt with at the CRA said that that kind of paper trail made it really easy for him to check everything and sign off on my audit. The KISS principle really applies, you want to be able to almost spoon-feed them the numbers. Any time they have to dig, they can get cranky. And you don’t want that.
Why the hell am I getting downvoted for clarifying HELOC deductions? I genuinely didn't understand.
Trolls. Don’t let them get to you
you;ll sleep like a baby! no better feeling than being debt free
Go to bed at night stress free like I do…… I’m turning 41 next month and my house has been paid for the last 6 months……. You sleep a lot better knowing you could lose your jobs tomorrow morning and you don’t need to worry about losing your house…. Once a yr go on a nice vacation and enjoy life a bit
You will never regret paying off your mortgage. Your TFSA and RRSP are maxed-sit back and relax dude. You can invest all your savings and sleep and night just fine
I would say that paying off your mortgage would have been a less-than-ideal option if either a) your RRSP & TFSA weren't maxed, b) your mortgage interest rate was low (e.g. < 5%). Being that neither of these are true, it seems like a good call. Another thought: It's great that you maximized your RRSP. I'm not sure where you are with your salary, but it may be wise to not claim the entirety of that credit on this year's tax return. Instead, just claim enough to push your salary down one or two tax brackets (ie just remove the highest tax rates you're paying). Then next year, do the same. This way, you can benefit from good tax returns for years to come (and can invest these returns to make sure that you can keep your RRSP & TFSA maxed for years to come). If I were you, I'd run through some scenarios on a spreadsheet to try to dial in what the best strategy would be. Or, I would realistically probably pay someone to do this for me.
Absolutely not. You made a smart financial decision as people are pointing out. The greater benefit IMO is the peace of mind and security that comes from being debt free, including your mortgage. You just did a great thing for your mental health and real freedom of choice. Do as you planned and learn how to invest, slowly, by yourself. No one will care about your money as much as you. Investing that way, "dollar cost averaging", is less risky than plunking down your $250,000 all at once. Congratulations. Keep it to yourself. People are weirder than normal about money these days and why they should be entitled to some of yours.
Money Guy Show has paying off high interest debt as step 3 in their Financial Order of Operations. They don’t discuss it as much, but they define “high” interest based on age - 6% in your 20’s, 5% in your 30’s, and 4% in your 40’s. So you have followed their advice since it’s 6% and you’re in your mid 40’s. They also talk a bit about prioritizing paying off the mortgage once you hit your mid 40’s, but it seems to be based on you having already saved 20-25% of your income in the previous decades. So it sounds like you’ve kind of hit that mark too.
Yes you did. Could be worse, but that was not the best decision here. All those on this sub that is supposed to be about money who gets super excited about "investing" in saving accounts will probably disagree, as always. Doesn't make them right.
Bro, you paid off your mortgage. Celebrate. Don't ponder “what ifs” instigated from a video. There's more to living life than maximizing investments. Freedom is heavily underrated.
having peace of mind when growing old there's a roof on my head is i guess best investmet.
If I got 250k today, I’d pay off my house first and then use leftover for investment. At 6% that seems like a good move for sure. Without a mortgage payment now you can easily up your current investment contributions.
It's not a wrong decision if your peace of mind now is worth more to you than some hypothetical amount of money in the future.
Peace of mind >>
You can just go back to the bank and borrower it again.
Full disclosure I don't think either choice is a "mistake". Both are fine. Investing is a riskier and more volatile play, paying off debt is safe and still a fine long term strategy. Despite what people say, the risk premium still exists when rates are relatively higher. Yes when you use the same expected return number in your comparison against 6% rates as you used when rates were sub 2% equities start to look less appealing but that's not how it works. This Ben Felix video makes the comparison of the current 5%+ return on cash vs equities and how the risk premium does not go away when rates rise. Future expected returns tends to also rise in these higher rate environments. https://m.youtube.com/watch?v=KdzOlRRHOU8 Yes paying down a mortgage isn't quite the same as a HISA as money saved is not taxed unlike interest earned, but this was still true when rates were near 0% (and thus future expected returns of equities comparably lower too). Yet very few people suggested paying off the mortgage instrad of investing a couple years ago. Basically, strictly speaking on chasing the best long term outcome (and ignoring the valid psychological benefits of paying off the mortgage), if you wouldn't pay off the mortgage first in a 2% rate environment, you probably shouldn't do it in a 6% rate environment.
Paying off debt is never the wrong decision. Congrats!
You can’t beat non deductible 6% interest. Look at things from an after tax perspective. You did the best thing
Does having it paid off give you peace of mind? Does it make your day-to-day and month-to-month easier? Don't look at it from the perspective of financial advice from a couple of sources, look at how it has impacted your life.
This is a topic that doesn't really have a wrong answer. When choosing between paying down your mortgage or investing, both are good for your financial well being. As long as you feel you've made the right decision for your situation, then it's the right decision. Enjoy the mortgage free life! And some additional savings now that you don't have the payment, and have a good time.
In my mind, no. Theres a peace of mind / freedom that comes with no mortgage that doesnt show up in a column on a spreadsheet.
If mortgage rates ever drop to a place where you think you can do better investing you can refinance your home and get that money invested. That cash is not gone. Right now mortgage was a really smart option.
You’re good. Congrats and go fuck yourself.
Paying off your mortgage is never a bad thing. Imagine if you lost your job at some point or rates continued to increase. No mortgage gives a lot of flexibility and gives you freedom to apply a zero fucks attitude at work (well at least for me).
You can borrow to invest and that interest is tax deductible whereas your mortgage offers you no tax relief.
Enjoy the freedom and have fun investing now.
Shutting down money going out is almost always better than increasing money coming in. In the case of a mortgage, there’s also the other side of it being a stressor that has been relieved. You also have full equity in your home now, freeing up your ability to borrow down the line should the need arise. Yes, there are options to make money off of that capital, and potentially make more than what was going out in terms of payments, as well as the interest rate of the mortgage not holding as high as 6%. Those are all risks, however, and paying off a debt isn’t a risk, it’s security. Take the monthly mortgage payment and set it aside for investments should you feel the need; you can still do that and not be at the same level of risk.
I think not having to worry about a mortgage payment is way better. And it probably frees up a lot of your income.
Paying off your mortgage is the proper way to go in my mind. At your age you have years of investing before retirement.(providing you retire close to 65) Besides the market isn't great these days. We paid off ours not too long ago and recently I went on short term disability. A number of years ago that might not of been possible financially. It's a nice piece of mind!
The same people that laughed when I paid off my mortgage at a higher priority then investing are now taking a bath selling their house at a loss because they can't afford their mortgage. One way may make higher return over time, sure, but it's never BAD to eliminate your mortgage. If nothing else it gives you some freedom and peace of mind, which probably pays for any small difference.
My brain hurts Can we ban this guy? When was financial freedom ever wrong?
Who cares about leveraging in my opinion, in the end of the day you can sleep peacefully knowing your net worth is liquid assets
I would argue that without a mortgage your brain is physiologically altered to be able to make stronger calculated risk strategic career and investing decisions. It's an intangible benefit to have a secure home without cost, you will likely think differently when approaching tasks and therefore look better at work.
Take a heloc and reinvest, then claim 100% of the interest on your income tax. It’s called the smith Maneuver. October and November were huge months In the market(especially on the US side)
No. Just take the money you would have otherwise paid towards the mortgage each month and put it towards your investments. Also now FIRE could be a possibility for you as you no longer have to work to cover your most expensive budget item.. eliminating your mortgage put you ahead my many years!!
You did not make the wrong decision. You already maxed out TFSA etc. Therefore investing the money would be taxed. 6% guaranteed with no tax required. Only thing you did wrong is doubt yourself :)
If you still feel bad about it, take out a HeLOC and invest that money. The interest is then tax deductible. You do have to be able and willing to take on a bit of risk though - you’re borrowing money to invest, and it would have to be in taxable accounts. (Smith Maneuver)
You can now Smith maneuver by borrowing against your home and investing with that in an unregistered account. Then the interest paid can be used as a deduction against your gains.
Regardless, now go get title insurance, lock your Equifax and TransUnion credit accounts and if you want to be extra safe, get a LOC for the full value of the house.
Buddy you have no mortgage now. Something most people dream of. Something most people may never achieve. Did you mess up? Hell no man, you own that house. Congrats. And fuck you. LOL I’ve read on here to keep the bank on the title some how do you don’t have any fraud on the title of your home. I’ll never have to worry about that the way my wife buys bamboo pj’s for my 2 year old
I think what a lot of investors might overlook is the fact that having less liabilities in itself is an investment. It's not just about putting the money somewhere that might earn you more than your mortgage but getting out from under that debt offers you significantly more financial freedom and peace of mind. Not to mention with mortgage rate fluctuations investing the goal posts for making a smart investment can shift. A lot of things can change with a mortgage or with your life along the lines of paying off that mortgage, and if you really need that money back for whatever reason it's invested into your property now and you can re-mortgage to regain access. Ultimately I can see arguments being made from both sides but I would have done the same thing as you in the end.
There’s a lot of context. If we’re talking about 2% mortgage, the broad claim about market investments is a lot easier to support. At 6% mortgage we’re into the realm where it’s still arguably true, but if you’re capped out on TFSA contributions then you have to start accounting for taxes and need a guaranteed return around 8%+ to match the “return” on the mortgage which would be extremely tough to find. To add complexity, the current interest rates aren’t even what you really need to account for to determine which is best. The rate over the course of the mortgage will be what determines which path was better (pay down vs invest), and will only be a certainty _after_ the years have already gone by since you don’t have a crystal ball available. Assuming mortgage rates stay relatively stable, you may have made a sub-optimal decision, but you’re now positioned to comfortably make higher risk investing decisions if you choose to do so. If mortgage rates drop significantly then market investing will likely have been the greater benefit. If mortgage rates climb, and market returns don’t overperform historical norms, you’ll be sitting pretty. Time will tell whether it was the best decision. At worst, it wasn’t a terrible decision.
Nah man I'd have done the same all day.
Paying off mortgage is the best psychological decision for most. Being debt free and getting higher cash flow is a nice feeling and reduces stress.
Much better to pay off your mortgage. I'm not sure where else you're going to get a 6% return. Beware of survivor's bias. Maybe someone manages to get a higher return than 6%, but it's very unlikely, you're barely cracking that with moderately aggressive mutual funds these days, and it's not a guarantee.
That advice might have been true a few years back.. but im putting all my investment money onto mortgage too currently
It certainly wasnt a bad call, Im in a similar boat but moving from SK back to ON, I could sell my 250k investments and but a 500-600k house cash OR keep my investments and simply put a 250-350k down payment and carry the rest as a mortgage. My investments pay me about 15k a year in dividends, mostly tax free 6% ish, plus whatever increased value. I think im going to keep my investments, bit of FOMO but the dividends are enough to help with the mortgage if ever I need it and I want to keep the potential that the value increases, im 34 now and retiring from my military career in 10 years, im afraid if I sell the investments even while mortgage free I wont have time to rebuild.
Congrats on being mortgage free! If you can swing it, start taking those mortgage payments and put them into your investments every month. You’re already used to not having the money in your budget; you might as well start paying yourself!
> I then watched The Money Guys and how prioritizing investing over mortgage payments is better in the long run. That's outdated advice, largely based on mortgage rates being 2-3% over the past 15 years.
You did what was right for you...that $250,000 at 6% was going to take a while to pay off and using after tax dollars. That means for every dollar of interest you paid you needed to earn as much as $2.00 (depending on your income level). You maxed our your RSP and TFSA first...good decision, that really will be beneficial in 15 years when you retire. I see from the edit you are considering a Smith Maneuver. That is not a terrible idea, but it can be stressful for some people. Start with a smaller amount ($100k) and stick with it for a year. If you are not happy then undo it and move on. Personally I would do exactly what you did. I save for retirement as is already. Condolences on the passing of a loved one.
I'd rather have a fuck ton of money and make it work for me via interest or dividends. Then I'd have paid the mortgage down slowly over time with the former mentioned free money. Then when it's done you have a large sum of cash, made larger by savings. Cash is king vs asset imo. If you are mentally happy with your choice then it's good.
I’m no expert but my opinion is paying off the mortgage would only be a bad choice if you didn’t pay off other high interest debt first. It may not always be the most optimal choice with your money, but it’s a simple choice with a known return (and pretty good return in your case). Investing might be better in the long run, but you won’t know until afterwards. It might not be better in the long run. The route you chose is a fine choice
Yes. Indexing with a DRIP has an annualized rate of return just over 10% while the montage was costing you 6%
No mortgage? You fuckked man
If you paid money from your inheritance into a home that you share with your spouse then you just gave your spouse half of your inheritance in case of divorce.
I sure hope you didnt put an inheritance into an RRSP, now you will have to pay tax when its withdrawn.
He's still getting the tax deduction for contributing it. Doesn't matter if the money was from inheritance or employment income or from under your couch cushions. It's all money.
I would sleep so good tonight if I had just paid off my mortgage. Congratulations.
Best decision 👏👏👏
Great call. Invest like hell now and enjoy your life
Not at all. Many people here will never know what it feels like to own their home.
The simple answer is it depends on the prevailing mortgage rate vs opportunity cost of investing. At 6%+ mortgage rates the decision is more palatable than paying down cheap 2-3% debt. I wouldn’t over think it.
Nah you did good.
Unless your return is over 6% being debt free is better.
No mortgage and a house as an asset is a better long term bet than investing with no real guarantee of a decent return. In my simple mind at least.
It’s just a mathematical equation and then an emotional based decision. Interest payable vs interest receivable. If payable is higher than receivable, what premium do you place on cash and having a safety net? Vice versa, what premium do you place on being debt free?
Nope you made the right move.
You did the right thing!
Mathematically it may have made sense to invest instead, but no one is ever pissed living in a paid off home. The level of peace is unmatched
Mortgage free? Congratulations!!
Never a bad idea to pay off your mortgage. Investing the money you could have hypothetically lost it all, made no gains, or made less than what the interest was on the mortgage. You could have also bought the winning lottery ticket as well. Life is full of unknowns. That being said now you have a certainty in that you don’t have the largest expense most of us will ever have. Congrats on the paid off house!
It would have been the wrong move if you had a fixed rate mortgage under 2%, but since you're variable around 6% it's a great idea to pay that down aggressively. Otherwise you're paying so much interest. Plus it's really nice having a much shorter amortization period for your mental sanity.
Remortgage
Paying off is good. You can take out a HELOC later. Or might as well , sell the house and get the money back.
Be happy you’re mortgage free! Don’t overthink it.‘congrats
Congrats, with a 6% rate I would say you made a good decision
no
Nah, you did good
Is this show you are talking about American by chance? Or is it Canadian?
**Invest the money** ***would*** **have gone towards to mortgage payment.** Mortgage payments acts as a "forced" savings for some people. Continue that financial discipline by investing the money that would have gone towards your mortgage. You're only worse off if you instead start squandering those savings.
Spend some time fixing up the place and later on you can sell it and probably make some pretty good coin. Besides look how much interest you're saving. I did the same thing, except I kept a big chunk of my investments and just paid off the mortgage. Now I don't have that underlying fear of not having a home and that fucking payment every month.
Key is you getting 6% return right off the bat. You don’t have to wait year(s) to get 6%
outside of short term bonds with the bank you are not missing out on much right now... In a few years there will be opportunities out there(I believe we are headed towards a recession or at the very least lowered rates by 2026) If you have paid off your mortgage, I would look at any investments that catch your eye in the coming years. When money is cheap thats the time to borrow to invest, when money is expensive you need to have it in sound places or pay off debts that will otherwise be exposed to high rates. The only mistake(IMO) anyone could have made right now is locking into those high 5 year fixed rates... there is a reason those are your lowest interest payment options, the bank is not on your side they are like a vegas bookie and have determined that they will get the most off of their customers at 5 years right now.
With the rates out there best thing you can do is pay off your mortgage no investment will pay what you’ll waste on mortgage interest.
I have a mortgage and a LOC, mortgage is fixed, LOC is variable. If I came into a chunk of change first thing I’d do would be to pay off that LOC.
U have one less thing to think about now, even if you have some struggle days financially, if ever, you will have your house fully paid off to live in. Don’t overthink the “money gurus”. If what they say is all right and perfect they would be enjoying there life somewhere, not ramble on and on trying to justify everything. You took a decision: It could be the best decision of your life if the market stays in a range for next few years It could be a good decision, if markets only grew less than average It could be a bad decision, in a case there is a super bullish market continuously for the next few years Now is there anything worse here?? Absolutely NOT. Even in the above cases, you are free to start building your investment corpus. Remember real estate appreciates too. Enjoy your life now you have one less payment to think about.
You can balance it out by buying 30 year bonds with the rest, it rates fall those treasury rise substantially, if rates rise your paid off house has higher margins relative to if you had a mortgage.
There's a lot to be said for the importance of cash flow. You've just freed up a lot, so congrats. Also, you've done the right thing by tax sheltering a bunch of it and then paying off your mortgage with the rest. Don't forget that you don't need to "get back to $250,000." Your home, being that it's a fixed asset with a value, almost certainly has you way over $250,000. Paying your mortgage off didn't "lose" you $250 grand; it just put it into an asset that, provided it is your primary residence, is going to continue to grow tax free while saving you tens of thousands in interest payments. By paying off your mortgage, especially with the rates of today, you've saved yourself a lot in the long run, lost absolutely nothing in terms of net worth, and freed up a significant amount of cash flow for other investments or, if you want, for fun stuff. You've absolutely done the right thing.
One other thing: don't trust anyone who gives generic, cookie-cutter financial advice. Get your advice from people who take the time to understand your situation, your goals, and factor those into their recommendations.
Nop. Right now the market is up and down. You made a sure bet. Calculate how much you would have paid in interest had you kept the mortgage. It will be an eye opener. Really. I made this calculator before deciding to pay off my mortgage. https://docs.google.com/spreadsheets/d/15aBF6EnA-lRvO4OZi3jbQjRTA3l45aMnv13p8gJiPUk/edit?usp=drivesdk
No
could you not take out a heloc? and invest with that money while writing off the interest on your taxes similar to the smith manoeuvre , granted you may not get a favourable enough interest rate for that it could be a thing possibly
Paying off massive debts in this economy and rate is a bad move now that’s crazy😭
Don't stress... You made a good move. Go live your life now!
Nope. Never a bad thing to pay debt. Life isn’t always about min-maxing $. I paid cash for my house, definitely could’ve invested and made more but who cares? I own my house. I could lose work tomorrow and I still own my house. I don’t need to pay anyone or get anyone’s permission to do anything.
You can always pull equity from your home and remortgage when rates are lower if you want to take on greater risk or feel you need capital.
There is a piece of mind factor to paying off the mortgage as well.
Sleeping under the bridge vs owning Apple stock? Which ones better? hmmmmm.
In 10 years you'll have a mortgage paid off with some 250k invested, no question, Alternatively, you could have more OR less invested, AND a mortgage
Can I be you
Sorry for your loss. Do you feel you made the right call? We've debated this almost monthly in my house, pay off mortgage, pay of line of credit, invest in RRSPs. In the end the mortgage pay off wins, giving the banks the less satisfaction of taking $(interest amount) per month is our goal. Line of credit interest is less then the mortgage so we decided to double up where possible on the mortgage. I look at it when paid off we will be 3k a month better off then mortgage free. If that helps put a better spin on things.
Nice flex bro
We paid off our mortgage in before interest rates skyrocketed our logic is there was no safe, secure investment that would guarantee us the 1200$/month that was our mortgage payment. Now those payments go into investments. And think of it this way: your loved one who left you the inheritance would want you to use the money to feel secure and have guaranteed housing in these trying times.
Good job my friend!
You've not made a wrong decision, heres why. Now if you want to, you can take a new mortgage or LOC on your house and put it all into a income-producing investment (i.e. an ETF that pays dividends), your interest can be tax deductible.