Tom Bradley recently responded to some questions from young homeowners about debt and it got me thinking about the mortgage paydown versus investing debate, again. For us there will be an enormous amount of emotional well-being when we’re debt-free. While we invest every month by contributing to our Registered Retirement Savings Plans (RRSPs) and maxing out our Tax Free Savings Accounts (TFSAs) throughout the year, we also work on killing our mortgage debt rather aggressively. Here are some reasons why:
- Killing our mortgage is one of the safest investments (i.e., less risky investments) we can make.
- After the mortgage is done we can stop paying our bank and start paying ourselves (more) money.
- Debt is somewhat draining and stressful for us – we need our jobs to fuel our existing mortgage debt.
- When we own our home we won’t risk losing it should something unexpected happen (e.g., job loss).
- We cannot control our investment (stock market) returns so we might as well control what we can (debt repayments).
- Real estate like the stock market is cyclical, there will be downturns eventually and we prefer to be debt-free when the next decline hits. It may be difficult to sell a house if you’re forced to.
- We don’t know anyone who is well-off financially who decided to carry lots of mortgage debt for many decades.
- Borrowing rates won’t always be this low; rates will rise, eventually, someday and when that day comes we won’t care.
- When you service debt you don’t have money for other things you may need or want.
- I don’t have to write about this debate anymore!
As far as I’m concerned we’ll have much more financial flexibility when we’re debt-free. Usually the easy answer to the mortgage paydown versus investing debate is “do whatever you can to earn more money” but that argument largely ignores real risk factors that are beyond your control, some of those I’ve mentioned above. Investing diversification principles are something I take to heart. I don’t like keeping all my financial eggs all in one wealth creation basket so a debt-free home along with our RRSPs, TFSAs and non-registered accounts and we’re becoming adequately diversified.
We haven’t lived through as many stock market and housing cycles as Tom Bradley has (Read in: we’re not as old as you Tom) but it simply makes sense that as an investor you don’t take on more risks than are necessary nor can you weather the storm through. The reality is holding onto debt comes with risks. We’re certainly not complacent when it comes to debt and likely never will be.
What’s your take on debt? Are you working on mortgage debt like we are?