Should You Pay Down Mortgage FASTER or INVEST In Stocks? Our Answer... (2024/2025)
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- Опубликовано: 3 окт 2024
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Today we'll discuss my decision to invest money in the stock market vs paying down my mortgage faster.
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I'm 40 - sold one of my properties in BC, took the equity and we moved to Alberta. We got a nicer place, we have a mortgage and I put the balance into investments. I am getting roughly 7000 a month in dividends which allows me to reinvest, and cover my mortgage with my investments. I don't mind having the debt, it's serviced and I do have equity in my Alberta home. I just recently accelerated my paydown schedule and I will look at lump sum payments in the future.
Glad to hear I wasn’t the only one who chose a 1.45 variable mortgage and payed the price
a lot of people did including myself - the fixed rates were much higher at the time and the BOC was telling everyone that inflation was transitory. lesson - dont trust central banks
I know your pain. We’re all troopers for going through that rough 2-2.5year
Paying not paid .. 😂😂
As long as the money earns higher than the mortgage rate (net tax), the decision is simple.
Living in Qc with a mortgage and no kids.
I do a 24 months rolling financial forecast for me and my wife. And we put 40% of our salary into our investment/paying down mortgage. I would say 60% investments 40% mortgage
Thanks to both of you I was able to discover the investing world and I have made over $30k in dollars cost averaging (S&P, Harvest, Canadian ETFs)
So thankful guys!!! 😎
Why anyone took a variable rate mortgage when rates were so low is beyond me.
Greed.
@@robertstanislausyep..I locked in for 5 at 1.44 and never looked back
Two first years, I did pay the regular mortgage payments. Third year, I am currently paying 500$ extra on top every month and I did start to invest so I prioritized my TFSA.
Fourth year (next year), I do not know... So the video is welcome!
I was thinking maxing out my TFSA and then trying to increase payments to $1000$ extra on top of my mortgage payments. I am a little bit scared of what will happen when my mortgage will renew, I definitely hate the system in Canada compared to the US and most of Europe where you lock your rate for the life of the mortgage.
Thanks a lot for your perspective on the question, that's helpful to hear that other people are doing a little bit of both, paying the mortgage & investing at the same time.
Richmond... Last place I would buy here, it's almost sea level, the risk with floods will rise with the coming years especially for the next generation since you have kids.
I like the freedom of paying off a house. I did and it was the best decision i ever made.
Same!
I am trying to do now!!! I can't wait.
Like they said at the very end, only other thing I MIGHT argue for investing instead of paying down your mortgage (besides the possible better return), is I feel like having the mortgage payment may add just enough motivation to keep you on a tighter budget. I can imagine - and have seen - situation where people free up 2-3k cash flow and instead of investing the remaining difference, just splurge on things they never used to before.
A paid off mortgage gives you a place to live rent free. If rents for comparable property in your area are $3,000/month for example, a paid off house is equivalent to an investment portfolio that returns that much income. You also have the option of a reverse mortgage in retirement. I agree it's situational - not one size fits all - but know from experience that peace of mind knowing your cashflow requirements are reduced but the asset is still there is worth considering.
I paid off my house while borrowing money for investments which is tax deductible.
Good to see you side by side. Blessings.
Here’s what I’m doing:
We built our dream home in 2020 and locked in a 5yr at 1.92%.
Weekly we deposit into my TFSA and my wife’s RRSP and we pay extra money on our mortgage.
So we’re doing it all 😁😁😁
Just bought a rental townhouse last month and we decided to just pay it all down (cleaned out everything). With the rates the way they are, we wanted to get the mortgage out of the way. Now it’s back to 100% focus on building up the stock portfolio. It’s actually been a really nice reset - sold some losing positions, some winning etc etc. Now I’m almost 100% in simple etfs. Trying to keep it simple and index.
Paying down the mortgage is also not taxable vs capital gains/taxes on dividends for unregistered accounts
I think the biggest factor is having a home paid off with a much lower monthly living cost then losing you home and being homeless or having to rent and be paying off somebody else's mortgage.
With the volatility of the economy and jobs millions of people have had their lives uprooted and basically destroyed with this Liberal insanity that has devastated Canada the last decade the people without a mortgage have been the ones who have been able to survive far better then people trying to find thousands of dollars a month for mortgage or rent
I like using a majority of the excess towards the mortgage, but also leaving a little bit of room to invest. Maybe an 80/20 split
I think you should consider Smith's maneuver
I think paying off the mortgage is a great choice. It will change the way you think. Some many things in your life can change when you don’t have a mortgage and a vehicle payment. I’m in the process of paying off my mortgage and it should be done in the next year. I can’t wait to make that last payment!!!!!!
This is a great topic. It's come up with some friends and family. They decided to continue making employer matched retirement investments, RRSP and TFSA contributions. Extra funds invested until the mortgage term is due as the mortgage rate was at least 2/3 lower than any of the investment rates and paying extra money towards the mortgage only reduced interest, not the prinicple so the monthly mortgage payment isn't reduced. There are so many options depending on your situation.
I'm in a similar situation as you (age, kids, stage of life, housing costs, ect.), and I've been contemplating this as well. Personally my strategy that I plan on using is to contribute aggressively into a spousal RRSP over the next 15 months, then use all of the tax refunds from that to pour into my mortgage. After 3 years my wife will be able to take that money out tax free (dropping the tax burden from 45% to 0%) and we can allocate a good portion of that to the mortgage.
That way, I can still get exposure to the markets and generate some higher returns than my interest rate and have a larger lump at the end of it to do some serious damage to my mortgage.
These are tough decisions, but I do tend to lean towards investing over mortgage.
One thing to mention about the Ramsey method is he doesn’t recommend putting all
your money towards the mortgage - but a large portion of your income. 15% goes to investments once you are consumer debt free and the remainder to the mortgage. I’m not a Ramsey diehard but wanted to clarify. Great video guys!
Pay down the mortgage, borrow from your HELOC to investment on the stock market in dividend paying stocks and ETFs which will allow you to deduct the interest paid on the HELOC. Use the dividends to pay off those interests and if any amount left over use to paydown your mortgage even more. when the mortgage is paid up, pay down that HELOC and you'll be debt free with a clear house and a very decent investment portfolio.
that’s a bit risky but i like the idea
Can you write off the interest on the heloc on your primary home ?
@@zionluka9549 yes as long as the funds borrowed are invested in a non-tax sheltered account (i.e. a cash account) and your funds are invested in dividend or interest paying stocks, etf, etc. Look up « The Smith Maneuver » …. It does have some risk just like any investment on the stock market but when you do your research right it’s a great accelerator to actually pay down your mortgage, then your HELOC all while building wealth.
@@NnickKification you’re right there are some risks but like any investment you need to do your research on the stocks you invest in … and remember to diversify.
@@zionluka9549 Yes as long as you’re investing the funds in a non tax sheltered account (i.e. a cash acc’t) and the funds are invested in income producing stocks, ETFs, etc that pay dividends or interest. It’s called The Smith Manoeuvre …. Maybe @BeavisWealth could make a video about that tax benefit
Brandon the bank you used for your 5yr VRM greatly impacts your mortgage schedule:
Do you have static or adjustable payments? (Was there a trigger rate?)
If you weren’t with Scotia or NBoC and were static (RBC has interest +$5 principal payment) and you hit a trigger rate, you should cover the process of the term renewal. Whether you paid to keep your am on schedule or reset back to 25 or 30 years.
Great discussion! I currently have a cottage that I rent 80% of the time with a mortgage...common advice says don't pay it off...I've even been told to put it in interest only to keep higher cash flow in retirement. Ive been retire for over 2 years now and fortunately have seen some great gains that I could cash out of and pay off the balance. Would love to see some number crunching on the options.
I am in the lucky circumstances that I have a nice RRSP and TFSA. We have always added a little bit more to the mortgage repayment, each month, and now we are at the point that I got laid off at almost 63 (good luck finding a job) and we have decided to maybe retire. It is an awful feeling because I was the breadwinner and have enough saved up to pay out the mortgage and free up that bi-weekly pay. My wife wants to hold a small mortgage or even put the money in a LOC. We have options, our financial friends have already drawn up three ways, so I should not feel too bothered by retiring..... To me, it is time to pay off the last little bit of the mortgage and start enjoying our beautiful home, free that money up, invest what we do not need. By the way, it is amazing how little money we really need.
Literally perfect timing. We are about to close on our first property and set a hard budget so we will have extra cash flow monthly. Was wondering this exact question!
Great video guys, was waiting for this one for last 2-3 yrs! I was also house rich cash poor so decided putting most of our capital to investments. Cash is king. Also using our HELOC to invest in real estate. As others have said, the smith maneuvre allows one to write off all mortgage interest on rental property (or stocks as long as they are income producing). That combined w leverage (using the banks money) can grow yoir portfolio 5 times faster. It might feel good to pay off your mortgage and have no debt, just keep in mind it really inhibits growth and is the difference between one retiring with $1m and one retiring w $10m+
This question has been a lot on my mind the last year I am about 60/40 networth home equity VS portfolio's TFSA's and CASH accounts. in about 18 months ( I will be in my late 40's if God willing)I could either pay - off my mortgage balance in full by selling my securities or keep doing what I have been doing invest monthly and every year throw a lump sum directly onto my principal amount. But like Dave Ramsey always says the peice of mind that comes with no mortgage payment is priceless! Good luck to you all whatever path you end up choosing just have a plan do do what works best for you and yours! God Bless you all and great content and discussions in the comments!
My mortgage came up for renewal last June. I was paying 2.49% interest(fixed). For at least 2 years, I was putting as much into the mortgage that my bank would allow. In June, I was down to just over $43k, sold some of my shares, and paid off my debt. I think fixed mortgages were close to 5%, I wasn't interested in renewing at those prices. For me, the piece of mind is worth it. I still have a fair amount of shares, and now with money freed up, I can buy a few more. Cheers, Rob.
The argument always seems to be that, if the investment return is more than the mortgage rate, one is ahead by investing. But the absolute amount of interest paid, relative to loan amount - even on a very low rate mortgage - is massive in the first years. It's not equivalent to the mortgage rate %, over an annum. It's only truly amortized at that rate if you were to hold it for the entire duration, such as 25 years - which can't be done because it has to be renewed anyway.
Started a 25 year mortgage 1998 for a Townhouse BC Lower Mainland. Refinanced about 3 times every 5 years, well we are now 14 years left at age 56. So we turned a 25 year mortgage into 40 years unless we increase our payments again, in 2021 we renewed and I told bank take my 19 year Amortization left into 17 years. And have increase payments once a year. 74% equity and took early retirement at 55 with DB pension after 35 years.
Absolutely love this subject and your breakdown. Paid off home, bought an investment property for zero money down with 20% collateral on our home at 4.99% 3 yr fixed. Is it worth paying it down fast? I don't think so especially with the amazing tax write-offs of having "debt" on an investment.
i was hit hard on this as well... Thanks for the great input on this topic. Glad to see you both collaborating on a video together. its great
I am 31 years old, and just sold all of my portfolio for the down payment. I feel sad and empty, since i loved my portfolio and the market.
But i will enter my new appartment in 5 days.
And right now there is the dilemma for me of starting to build the portfolio again / this time for sure, wont want ot sell it/, or focusing on lowering the morgage.
The idea of being in debt for that huge amount of money is really unpleasant for me and markets being at ATH...
But in the long term, the markets will give me better return.. /2.18% interest rate currently on my morgage/.
Thank you for this video.
Could you have another video to also add balance between stocks, mortgage, and investment properties?
I currently live in durham region, basically 30mins from Toronto and i was having a conversation with girlfriend about whether we really even want to own a home because we would basically be rinsing our savings and investments dry to give a 20% downpayment so we dont have insanely mortgages. I feel like on one hand the growth over 25 years that our current investments would do we could end up living off dividends but on the other i hate the idea of throwing away 3k a month in rent to someone else
We’ve been doing biweekly payments. We chose fixed but only 3 years so the renewal this year hurt when we went into the 6s (for one year, wait and see approach)
Personally I like the idea of building the TFSA and RRSP up again first. Once that’s done I’d prefer to pay mortgage before investing into a taxable account.
I am paying extra for the same reasons Brandon mentioned, and hoping to stop the extra payments likely after Dec rate cuts
taking out variable when rates had nowhere to go but up was very ill-advised. Also so was living in Vancouver where the market is in extreme bubble. Maybe it wasn't the best to do but my mortgage just renewed, options to me were extend on variable or pay off 400k to be debt free in a mix from TFSA, RRSP, cash and non-registered, and have to pay some capital gains tax. I decided to just pay it off. Mind you this was about 14% of my portfolio including the withholding tax so the dent wasn't as big as it would be for some.
I would say if you have confidence of maintaining or increasing your income for the duration of your mortgage amortization then it makes sense to continue to investing all of your excess cash unless your mortgage rate is close enough to expected investment return. I would be focusing on building your wealth in your prime years 20-50 and pay down mortgage aggressively closer to retirement like 50-60.
Quite interesting video, thank you. My plan is to simply max TFSA annually and allocate whatever left there is on my mortgage. I also have a retirement fund, so RRSP isn't a priority yet.
Great to see you two and hear both perspectives ☀️🥂🇨🇦
Great topic. Thank you both
I think excessive freedom can be a scary thing aka paying down all your mortgage. It’s 100% a mindset thing. All driven people and successful people carry a fair share of leverages. Not everyone is intrinsically motivated , and for better or worse, the urge to earn I believe needs to be weighed against the reality of expenses. If I’m making any sense.😅
Great to see you guys together and great topic! I've been paying off my mortgage quite aggressively these 2 years since I got it and am now considering slowing that down so I can invest some more too. I also have more equity in my condo than my investments so I think I'm at a point where investing more regularly can be a good thing for my future. Awesome video as always!
I'm a huge fan of the Teo of you, but I have to correct you with regards to Dave Ramsey. They say to invest 15% of your net income, then use the rest to pay off your mortgage first, which is still more than what most people do.
Thanks for that correction with Dave Ramsey. Appreciate your support!
You always focus on the mortgage, if you split with your partner, you have something to split and walk away with a better credit score and hopefully some cash...no guarantees .you cannot live in a stock portfolio
I do both
Wow $7k is wild! I love fixed rate mortgages for this reason...I just hate surprises
I have a question: What is a difference between BMO balanced ETF portfolio that we buy in. the bank and ZBAL ? bacause the NAV for the one bank sales is almost $19 and a market price is abit higher not $39 like ZBAL !!
My dream is to be mortgage free but I’m not entirely prepared to sacrifice investing in our (myself and husbands)
RRSP’s and TFSA’s quite yet.
So just like having an auto investment amt go to each of those we put a lump sum on the mortgage.
Once that is gone then we can add more to our savings.
Planning is key .
The price of a home is highly subjective and realtors are the dictators of the home price. Why can’t the government stop their commission profit - they should never be making more than a lawyer!!!!
Too many edit cuts... Why cut in just a single word???
Pay off the mortgage. Duh. In canada, mortgages are 5.5%, so unless you can beat that return, PLEASE focus on paying off your debt
You are from my home province MB? Whoa!
Imagine you’re sitting in your fully paid off home. Now, ask yourself - would you borrow money against your home to invest it in the stock market?
well, investing in collectible comic books should be on the table as well...since my mortgage is 1.94 for another 17 months, I have chosen to invest in stocks AND increase my mortgage payments. and buy some comic books...
Being mortgage poor isn’t all bad if you blow through available cash & house is increasing 🤷
HOW ABOUT WE STOP ALLOWING REALTORS TO COMMISSION THEIR PROFITS WHICH WOULD REDUCE THE RIDICULOUS HOME PRICES
HOW ABOUT WE STOP ALLOWING REALTORS TO COMMISSION THEIR PROFITS WHICH WOULD REDUCE THE RIDICULOUS HOME PRICES
Did I hear you’re originally from Manitoba??
i will die with a mortgage. My income carries the house expenses . Why worry about a mortgage. My income TFSA alone pays the mortgage. Dont worry baby!
No right way to do it but I think the best way is to leave Canada - just my opinion ;)
and going where ?