Weekend Reading – Is it worth paying off your mortgage early?
Hi Everyone,
Welcome to a new Weekend Reading edition with my answer to this question:
is it worth paying off your mortgage early?
Before my definitive answer on that, meaning how my wife and I have approached things for us and what’s been working for us, some recent reads:
I posted my latest monthly dividend income update in our pursuit towards some form of semi-retirement / work on own terms in the coming year or so.
I’ve been an advocate of ending any firm RRIF minimum withdrawal rates for many years now. They really don’t make much sense to me other than the government wanting their deferred taxes money back. I think more simplification is needed…
What’s your take?
Weekend Reading – Is it worth paying off your mortgage early?
I have my/our answer in our house. More to share in a bit!
Let’s start with some math.
Probably the single, biggest, apparent reason to prioritize paying down your mortgage (vs. spending money on other things, investing your money in parallel, other) is that it saves you money. That’s good! With each mortgage payment there is a payment on the mortgage principal and the interest payment. I won’t include more details about mortgage calculations or calculators here beyond that – there are a gazillion to Google….
The mortgage interest is the fee you pay to the mortgage lender – the cost to you for using other people’s money. The most common time horizon for a mortgage is usually 20 or 25 years to use other people’s money. That’s a long time, with potentially a lot of interest costs to you. However, there are ways to lower the long-term costs to you so that you can eventually own your home. This list includes ones we have used as well:
1. Maximize your down payment
While it’s possible to get away with a small down payment, it makes sense to put down more. By owing less, from the start, interest will not compound on you as much and you will borrow less money over time.
2. Get the best rate and terms that meet your needs
Shop around. Simple. Not all mortgage terms and conditions are created equal. Ensure you consider double-up payment options and the ability to increase your payment over time.
3. Accelerate your payments
Before you sign on the dotted mortgage line, consider your payment schedule and options. One option is to make or change to accelerated payments. There are many different payment options to consider, including bi-weekly and accelerated bi-weekly. With accelerated bi-weekly payments (that’s what we currrently have BTW), those extra payments reduce our mortgage debt faster than some other alternatives.
You can also consider making lump-sum / one-time payments as well. Such extra payments go right to the principal.
This Weekend Reading edition was inspired by recent data from The Globe and Mail (subscription), I’ve posted the table below:
When it comes to our decision, this was what we have done and how we think about mortgage debt to date:
The definitive answer to paying down your mortgage or investing
Image in post courtesy of Mortgage Intelligence (no affiliation).
To summarize, consider the following for your decision – there is no right or wrong in my book. Personal finance is personal:
- Paying off your mortgage early can be a great idea but that decision will depend on you, your financial position, your income streams and risk threshold for borrowing costs.
- If you decide to make extra mortgage payments and forgo some investing, that’s A-OK with me. That should make you debt-free sooner which can be absolutely smart.
- Depending on where you live, how much your mortgage is, and what it’s for (i.e., primary residence, rental property, vacation property, other), just know that not all mortgage costs are created equal. Some mortgage costs and related carrying charges are tax deductible. As always “it depends”.
Unless you are a real estate investor, I don’t know of anyone that regrets being mortgage-free. Food for thought!
More Weekend Reading…is it worth having an advisor?
I’ve found myself caught in the middle of a few investing debates of late, some folks attacking how I might (partly?) personally invest and I definitely witnessed a series of attacks or mocking how others invest.
I was going to share a number of screenshots but I will leave that be…it’s not my style but it is very frustrating…
To be honest, I’m not sure what folks are even debating. Here are my quick thoughts and takeaways from these rants by some:
- I didn’t remember there was “a perfect portfolio”. Otherwise, there is no debate. 🙂
- Financial education is good, including five-factor investing evidence, etc. but you can share your expertise respectfully. People may pay more attention to what you have to say if you do.
- Nobody has all the answers. Nobody should be made to feel bad about themselves.
- Whatever studies, whatever evidence you think you have, about any future, I suspect it could be flawed in some way. If you are indeed an Oracle let alone a perfectly rational person, good for you!
Sadly, I’ve received a couple of emails in own my inbox and at least one recent direct Twitter reply (see below) of late calling-out various investment approaches, including dividend investing.
I will unpack a bit from my perspective…
Anyone that reads my site knows I invest in various stocks and ETFs – a “hybrid approach” if you will, a term I coined some 10+ years ago on this site. Here is just some evidence of that.
My point is not about any term or moniker.
Whether folks decide to invest and approach their money management goals as an individual stock investor, a pure indexer, a private equity funder, a real estate investor, or by investing in themselves, as an entrepreneur to grow their business, these are all legitimate forms of investing IMO. Maybe you feel differently that there is only one way to invest.
I see the root of investing as:
- Expending money with the expectation of achieving a profit or material result by putting it into financial plans, shares, or property, or by using it to develop a commercial venture, OR
- Committing resources to achieve later benefits; involving money and usually involving time, OR still,
- Putting money and associated time into any sort of project or undertaking with hopes to generate positive returns (i.e., profits that exceed the amount of the initial investment). This means an element of risk can be involved; one can invest in many types of endeavors (either directly or indirectly) such as using money to start a business (see above), or in assets such as purchasing real estate (see above) in hopes of generating rental income and/or reselling it later at a higher price.
Different forms of investing or even the concept of investing seems very polarizing to some people. Take this recent example from a licensed financial planner on Twitter this week:
A strategy is a way of doing something or accomplishing something. It can be considered a long-range path or plan to achieve something or reach a goal. The word strategy can mean different things in different contexts. I’ve referenced a decent source but there are others of course.
Based on my interactions with some this week, it is clear we have different philosophies and objectives, even though I use some of the favourite indexed funds that experts tend to love – without paying them a fee of course.
I celebrate many forms of investing and more importantly, I celebrate anyone striving to realize their own goals on their own terms – in whatever manner they wish to their benefit.
I also believe online attacks are never OK by anyone, anywhere, anytime.
I will not be engaging with some people online any longer as a result.
Back to my question, is it worth paying your advisor?
I know where I land and have landed for about 15 years now.
The reason I am My Own Advisor is well beyond money management fees although I know other Canadians struggle with that too. More and more, Canadians are waking up and taking financial matters into their own hands. The financial industry can make it hard on them to do so at times. I know because I’ve been there. I’ll link to some material on that below, a few reasons why some people leave advisors. More change is needed.
Fees are just one factor, rightly so.
Example:
Prospective advisor: my mininum is usually household investable assets of $300,000 and I charge a 1.5% AUM fee, which covers all my services. This rate is my maximum and goes down as total assets break the $500K mark, then the million dollar mark and so on. Do the math – my average clients are paying $5000+ per year for my services. So, our revenue is entirely dependent on long-term client relationships, it depends on retaining you as a client and growing your assets.
Prospective client: $5,000 paid per year, every year? I need some time to think about that…
With so many excellent, low-cost, diversified fund products and new solutions coming out all the time I feel it’s never been a better time to be a DIY investor.
Your mileage may vary. That’s OK.
So, please index invest as you wish.
Subscribe to five-factor investing and all the research that goes with it if you want.
Please buy more real estate as you wish.
Please invest in yourself as you wish and grow you business, hiring others and creating wealth for them in the process.
I guess I’m more about goals here on this site, engaging with like-minded people, not calling my way is better than your way. Instead, I’m very much aligned to this:
Source: Behavior Gap
When it comes to people who feel they are on higher moral investing ground I’m becoming more like Keanu Reeves all the time:
🙂
OK, check out these other articles I found interesting!
This financial advisor learned the hard way that they cannot day-trade inside the Tax Free Savings Account. All advisors are not created equal. Like a car mechanic, there are good advisors and bad ones in the industry.
Why do people break-up with their financial advisor? A few reasons.
Source: article link.
Here is a great (older) article on trust and what biases to overcome in the trust process.
This article highlighted some ideas about how much retirees can withdraw from their investments. I echo this:
“Regardless of what happens, flexibility is key.”
My friend Tom Drake shared some pros and cons of opening a joint savings account.
Based on some bank manager advice:
“…to consider having both joint and separate accounts. For example, you could share a joint account to manage shared expenses but keep separate accounts for your personal savings or spending. That way, both partners can maintain a level of privacy and control over their money.”
On Findependence Hub, Pat McKeough offers retirement assets to avoid. From that post …
- Invest mainly in well-established, dividend-paying companies;
- Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; the Consumer sector; Finance; Utilities);
- Downplay or avoid stocks in the broker/media limelight.
Pat suggests retirees avoid bonds and annuities. That said, bonds can help people behaviourally and financially to avoid big mistakes/big equity drawdowns at the wrong time. I recognize bonds are not always for everyone – I don’t own any right now. But then again, dividend investing isn’t for everyone. Indexing and being right seems to matter to many people these days. Maybe DIY investing is not a strategy. Maybe investing in bonds aren’t an investing strategy either? I hope it’s OK I keep some cash but maybe I can’t call that a strategy either.
I hope you have a great weekend. Unless you attack people online.
Mark
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.
I’m actually trying to make the decision on whether to pay off my debt (mortgage) or continue to use the money to generate additional revenue each year. I have enough in my non-registered account to pay off my debt, but it would take all the money currently in my non-registered account to do so. For the past two years I have generated enough money with this money to make the payments each month, however, this is because I had a couple of good stocks that delivered capital gains and I also made good income from option selling. There is no guarantee I will be able to continue to do this over the next few years. Once the current options expire I will have to take a look and see what I can generate on new options, if it works out that I will be able to generate enough to cover another years payments I may keep the money and just make payments, if not I may pay off the full debt. I use a Manulife One account so I can pay as much as I want at anytime without incurring penalties.
As for using an advisor, I know intelligent people who use them, mainly because they have no interest or desire to learn about managing their investments on their own. If this is the case, one is probably better off using an advisor. Myself, and I would assume, most of the people reading this post have a great interest in managing their own portfolios and they should learn and do so. I short story, when I transferred my money to TD I was told I was putting enough into investments that I rated a higher level financial advisor. I met with the person and he explained that he couldn’t guarantee any returns but was confident he could get 4% per year and for the low cost of 0.75% paid to cover his fees. At the time TD Bank shares were paying around 5% dividends. I mentioned to him that instead of using his services I could get 5% returns from TD shares in dividends and at no annual fee. He was not happy that I knew this and told me it wouldn’t be a good idea to invest in TD shares, I then asked if there was a problem with TD Bank that I didn’t know. He really didn’t like my line of questioning and just ended our meeting knowing he wasn’t going to get my business.
Hey Paul,
A good decision to have/to make…
FWIW, we could have paid off our mortgage years ago with any existing non-reg. investments but honestly, with our mortgage debt at 1.69%, why rush!?
Now that we’re in our final year or so of a 4-year 1.69% term, well, we are likely to kill the debt before semi-retirement. Just seems smart.
I don’t deal with any options myself, but I hear your dilemma.
I have no issues with advisors, for the most part, I really don’t. But I think like any service you have to question the value for money. If an advisor is going to help save you from yourself, maybe it’s a good idea! However, I do firmly believe most investors can become DIY with enough investing basics to master.
Totally: “Myself, and I would assume, most of the people reading this post have a great interest in managing their own portfolios and they should learn and do so.”
Not too many people read my site if they are not interested in some form of money management 🙂
So, to your point: “I mentioned to him that instead of using his services I could get 5% returns from TD shares in dividends and at no annual fee.”
Yup. A nice story and case study why it’s good to be a business owner (via stock shares) and not blindly own the the company products. DIY investing teaches people, in a good way, to become an owner. That’s how wealth is usually created…
I appreciate your comment!
Mark
I was recently reading an article about retirement and taxes. It says, how withdrawals from RRSP are taxable as your income. So, the school of thought was to have a non-registered investment account to generate dividend income. While discussing the idea, my spouse asked, what if the government stops giving dividend tax credits?
I was leaning towards not maximizing the RRSP and starting a non-registered DIY account.
Any thoughts?
I know a lot of DIY investors that have been very fortunate to max out their TFSAs, then RRSPs, and then taxable investing on top of that – but I’m of the mindset that it’s best to max out registered accounts before taxable investing.
Happy to disucss, no real right or wrong here, just tax consequences of any decision.
Mark
One year in the late 80’s (crazy move on my part to go with some broker, where I could only pick from his list of value stocks). Obviously that business relationship didn’t last too long. Aside from that one year, I’ve always been a DIY investor. Even when I made stupid moves, and I’ve made a few blunders, at least I was learning.
Now just having a couple of low MER global index ETF’s along with our individual Canadian dividend growth equities is the best thing I’ve ever done and oh so easy.
I read this over at Norm Rothery’s website ndir.com and couldn’t help but smile. It looks all too familiar from what I’ve seen over the last few decades.
“Pauper’s Grave” retirement plan
https://www.thebeaverton.com/2023/04/cibc-unveils-new-paupers-grave-retirement-plan/
That’s pretty much where I’ve landed too…a few low-cost ETFs, some U.S. stocks as I please and then my basket of individual Canadian dividend growth equities. Seems to be the best of all worlds or least indexing mostly beyond Canada + investing in Canada.
Thanks for the link!
Mark
My two cents on paying off the mortgage, advisors and debating who is right and wrong in personal finance on the Internet.
Mortgage:
We paid off our mortgage before we started index investing. In hind-sight doing the math we would have been ahead (net worth wise) if we had started index investing before paying off the house. However, there are more factors than just the math calculation (such as the sleep at night factor). I also think today with the raising interest rates the math is also changing. As Canadian’s we also need to make sure we are not factoring in the interest write offs or ability to get 30 year locked in rates that our American neighbors can benefit from.
Advisors:
The person most likely to care about your money is yourself. I have experienced both good and bad advisors. One quick way to tell if an advisor has your best interests at heart is look that their motivation or incentive. If the only way they get paid is by selling some overpriced mutual fund they will make sure selling that to you is part of their advice. The pay for service or by the hour advisors are normally better. I also have seen first hand how if you show you know what you are talking about and start quoting MER numbers their advice quickly changes. I also think most of the time they are brainwashed or conditioned by their company so much they really don’t know they are selling over priced investments.
Internet debating who right and wrong in personal finance or anything else for that matter:
There is a lot of crap and bad on the internet, but also a lot of good if you sort through it and not fall into the echo chambers of hate and mindless. Everyone should be able to have an open mind and understand both sides can be correct from their point of view. As my example above on paying off my mortgage. I was open minded enough to listen and learn about the math why my choice was not optimal mathematically, but instead of entering the debate to prove my other reasons were worth it I am able to see both sides and move on. One thing about personal finance is that is it personal!
Thanks, Tech. Very balanced reply!
Yes, I’ve heard that from others, re: some would have been better off investing and/or index investing at that before paying off the house. I totally agree we don’t live in a spreadsheet 🙂
“The person most likely to care about your money is yourself.” – yes, I know some very good advisors as well who have some great flexibility at heart but I also know some who simply love to be correct at anything… As such, I think fee-based/as needed advisors are the way to go.
I’ve given up on having any meaningful conversation with some people online. I don’t target their other choices in life but it seems some folks simply love to argue. That’s not value-added for me.
I appreciate your comment.
Mark
If financial advisors are giving you grief over some of your suggestions, they’d likely blow a gasket if they saw the dog’s breakfast of crap I have/do in our portfolios. I’ve had more than a few people ask why the heck I did what I did. In some cases the only answer I had was “It seemed like a good idea at the time?”. Additionally, I still have some crap I *know* I should have done something about a long time ago but I’m just too darn lazy to get on it. (EXE & FIE are the worst two).
I don’t mind a healthy debate on investing. But shall we debate eating habits, exercise, and other behavioural things? It’s not personal but some folks in the professional financial community make it so – which is disrepectful. Just me! I support all investors here – great/successful, not so great, folks learning and everyone in between. Unless you wish to mock others.
Have a great weekend!
Mark
Hi Mark, I know we should not paint all financial advisors with the same brush, but from my experience if you have the skill and desire you are FAR better off handling your own investment strategy. Back in the 80s when my wife and I started investing, our first financial guy put us in high MER mutual funds, and they never seemed to make any money. We eventually left him and moved to another advisor. We found out years later that the first advisor was selling mutual funds with the highest trailer fees, with no consideration for actual returns. The second (and last) advisor convinced us to not invest in RESPs, he said they were very inflexible and that he could do better (he didn’t). So you can see in our case not all advisors have your best interests in mind. After that I talked to a financial person at a bank and I eventually asked him how many clients he was “helping”. His answer was over 400, that made my decision to educate myself much easier. I haven’t looked back since. It seems to me in the past 6 or 7 years the world has gone to hell in a hand cart. I refer to these years as the “Trump” years. He is well known for his self serving ways, his constant lies, and his personal attacks on others. It seems to have brought the worst out in the world, and embolden many to act like him. Please don’t let these bullies get you down. We must learn to live amongst these folks, and continue to strive to live with integrity, and strive to help others in need. I can tell you are a good person, and you should know there are many who appreciate what you are doing. You are completely open and from what I can see you have no hidden agendas. I, and many others who have read your blog look forward to your advise and hearing about your future success.
Hi Mark: Dad always said to stick to your own knitting and ours was blue chip dividend stocks. You could get into real estate but if you don’t understand it trouble abounds. I was down to Brockville once and my niece asked her dad if they should pay off their mortgage or what. and my brother said that they should invest in blue chip stocks at over 5%- 6% as interest rates were low and to use the difference to pay the mortgage. My niece said I don’t want to be paying a mortgage when I’m 65. My brother said you won’t be paying a mortgage when you’re 65. She thought about it and looked kind of sheepish. She has a well paying job with the MNR and her partner runs teams for Shopify and is extremely well paid so they won’t have a mortgage when they are 65. On the investing front a friend in the subdivision came over to see me. He used the same full service broker that we did but things had changed. They had brought in a bay street investor to manage things and one of the first things he told my friend was that from now on they would manage his account portfolio for $4500.00 per year. My friend didn’t think much of that and neither did I. I told him he could do it himself much cheaper which he did. Until switching to Waterhouse (Greenline at the time) we got dinged with hefty fees. Until TD came to the party with DIY investing full service brokers were the only way to go.
Thanks, Ronald.
I know a few folks that have invested while paying off the mortgage and done something similar.
I have very few concerns if folks use an advisor, as long as they are getting value from him/her. At $5,000 or more, per year, every year from some of them, that’s an expensive value proposition IMO.
Cheers,
Mark
Coincidentally, I worked for MNR in Brockville in the late 80’s as a Fisheries Biologist. I’m in Alberta now. Small world.
Very small world 🙂
Mark
After witnessing first-hand what can happen to property values in small industrial towns when the company(ies) decide to shut down and leave, I decided to focus mainly on investing and treat my mortgage as a necessary expenditure like rent. I saw people who had poured all their combined income into their mortgage and pay it down in half the time, only to see their value drop by 80%, not to mention that there was hardly any prospective buyers in a town with no reason to live there. For anyone making a living in such a community, I think it makes no sense to sink funds into such an unstable “investment”. There are definitely much different considerations in a larger city though.
I’ve always seen a home/condo, etc. as an expense to be honest. Sure, it’s an investment in that you hope it rises in value over time but I figure I have to live somewhere. So, whether I rent, buy a home, etc. I have to have a roof over my head and that costs money. Investing in the stock market is very different. I have very few ongoing costs for that since I prefer not to have anyone manage our money for us. Everyone is different though!
Mark
Hi,
Nice article where can i find these double up producw when i check ratespy site to compare ans shop around all product on their page says no double up:(
Please do a new write up how you bought your first propetry what pitfalls you looked and learned from etc and how it can help fthb thanks
I can consider that!
Cheers,
Mark
I think one of the more interesting articles this week came from Ian McGugan’s latest column at Globeinvestor,
Value investing may finally be emerging from its decade-long slump
Actually it’s been longer than a decade, from what I’ve read the value investing slump goes back to 2007 until the end of 2021, but I won’t quibble.
Not mentioned in the article but apparently in the U.S., the Dogs of the Dow beat that index in 2022 for the first time since 2018, so maybe things are indeed looking up for investors who seek value, in my own case Canadian dividend stocks.
——————————————
As Rob Carrick at the Globe said just a few days ago.
“Dividend growth is one of the most powerful concepts in investing because it’s so compellingly simple.
A company paying a dividend that rises year by year generally can be considered financially strong – that’s one appeal. The other is that yearly dividend increases are one of the best and most accessible hedges against inflation.”
———————————-
As Peter Lynch stated in his book “Beating The Street” thirty year ago (1993), page 49.
“As companies grow larger and more profitable, their stockholders share in the increased profits. The dividends are raised. The dividend is such an important factor in the success of many stocks that you could hardly go wrong by making an entire portfolio of companies that have raised their dividends for 10 or 20 years in a row”
It’s hard to argue with the facts that some stocks, that have good profitability as one of the five factors for asset pricing, tend to perform well but some advisors have either emailed me or called out this approach online saying it is “not a strategy” and/or it’s pointless to invest any individual dividend paying company due to many risks.
As you know, I don’t just invest in dividend paying stocks let alone companies that have a certain yield %. That doesn’t really matter to me but some financial professionals like to target either myself (at times) or some dividend investors in the DIY community with their approach. Maybe if I ran a site that focused on just real estate or growing a business exclusively they wouldn’t have anything to say, I really don’t know. I can’t speak to the need to mock the way other people invest.
I always appreciate your comments. I do however not enjoy when anyone, including financial professionals, mock DIY investors. I guess I simply find any online attacks poor judgement but that’s just me 🙂
Mark
Peace and security is my reason for paying down my mortgage. Yes I could possibly make more by investing the money elsewhere. I do have other investments.
If things go downhill in the financial world, at least I still have my house and they can’t take that away from me. In 2 years I will be paying off a $675K mortgage that was to take 20 years in 14!
Ha, very true Akman! Good on you to have a goal and march to it.
Mark
Hey Mark,
First, I’ve had a few nutty people come at me over the years, but I don’t engage. I have zero interest in fighting off the trolls.
You know that we paid our mortgage off before we turned 40 in 2014, and we still have no regrets.
It was the best decision, especially given what has happened in the last few years.
There was comfort in knowing our small family would be ok.
Today, our investment accounts are maxed, although we pay an advisor since I’m not nearly as confident as you are.
I agree that whatever someone chooses to do becomes their ‘right’ decision because no one can predict the future.
We took a balanced approach, and so far, I’m on track to early retirement at age 63. Earlier if I can. No regrets. Most people die before they even use their investment savings.
I try and give some folks the benefit of the doubt, and to be honest, I do know where some of the advisors and money managers are coming from but to be honest, for asset accumulation: within a few clicks of a mouse they are not needed. Within a few clicks of a mouse you can buy the world of stocks for example in just one fund. Once you have a simple debt paydown strategy, term life as needed too, not much else – go and live your life and enjoy it with friends and family and experiences.
I don’t attack others how they choose to eat, exercise or what hobbies they have but sadly when it comes to investing some folks have some moral superiority which I don’t understand.
I appreciate your comments and insights. Kudos back for realizing some of your goals.
Mark
Paying off the mortgage vs. investing is an age-old debate and the right answer isn’t known until after the fact. It doesn’t have to be one or the other, it can be both, and I’d say this is where the benefits of sheltered accounts becomes part of the conversation (e.g. max-out the TFSA/RRSP and use anything left over to pay down the mortgage).
Having said that, I’ve never met anyone with a paid-off mortgage who regrets it! My wife and I were very debt adverse, so we focused on paying off our mortgage with double-up payments/lump-sum payments so we were free by our early 40s. Our mortgage was 5.75%, so higher than more recent times but not extreme. Through no insight of our own, that happened during the “lost decade” of the 2000s, when US markets went nowhere. By the time we were paid off, we were able to invest and catch up during the bull market.
It’s hard to forecast what will come next – interest rates should start to come down starting in 2024 as inflation subsides, but the question is what will equities do? Many voices say with high CAPE ratios we should expect moderate returns going forward, so perhaps paying down mortgages might be wiser, but ultimately, you should choose the path that allows you to sleep at night.
Yes, debates are interesting but at the end of the day your plan, your goals, are all that matters. Hence Keanu 🙂
If the advisor and academics can predict another lost decade or even “lost week” in the stock market, I’m all ears. LOL. I can’t but maybe they can…so maybe I should listen more!?
I do believe over the coming decades, there could be more modest returns but to be honest, I have no idea if things will really plan out that way. I will continue to invest how I do, keep a bit of cash, avoid too much debt, and live my life and try and treat others kindly in the process. I figure that’s a good start, I hope…
Have a nice weekend!
Mark
I agree, one size definitely doesn’t fit all in most, if not all, types of financial decisions.
Regarding mortgages, we had mortgages through the 90s and much of the first decade of this century when 5 yr mortgage interest rates were in the 6-12% range. We paid them down as fast as possible (did the floating rate option to knock off about 1.5% from the 5 yr rates and like Jo, did accelerated biweekly payments and lump sum “pay down 10% principle” payments) and had a bit $ left over to put into RRSP’s (no TFSA’s back then). My wife and my thinking being, paying down those levels of interest rates was a sure thing versus putting more of our $ into the stock market with less certain returns on investment. I suspect we are more adverse than most people to debt (probably a product of my first loan (a post-graduate student loan) being a stratospheric 14.9%) so paying it down quickly also gave us the psychological “sleep better at night” benefit.
Regarding investing DIY versus paying an advisor, I started out DIY investing. I didn’t do all that well as I had little knowledge and discipline and no strategy other than to chase the latest trends I read in the Globe and Mail (no internet then). When I got married and started the busy years of starting and raising a family, we moved our portfolio to a financial advisor (no ETF’s back then, just the beginning of mutual funds with large MER’s) as I had little time to learn and do the necessary research. Now that the kids are grown, I am a lot more knowledgeable, have the time and there is the internet to draw upon for a wealth of financial information, I recently dumped my advisor and am back to DIY investing. I have no regrets of going the investment advisor route for those 15 yrs as I feel I would not have done as well as she for us. It was the better way to invest given our circumstances at the time. Going back to DIY investing is now the better way for us to invest given our current circumstances.
I really enjoy your blog Mark…cheers
So many folks have a “sleep at night” factor. I do/we do too!
That factor that varies between people is not really up for debate for someone else – it is just what is.
I’m wired to be a bit conservative with money so I could have likely been even more aggressive with saving and investing over the years but chose not to. I also want to strike a balancing act that works for me/us.
When I started investing, few ETFs. Now, the world has changed. There are so many resources and tools available to the DIY investor – which is excellent. If folks need an advisor to support them, great. It’s simply not the only way to invest. Just find a good one and one that preferrably has a value-added cost model to your needs.
“Going back to DIY investing is now the better way for us to invest given our current circumstances.”
Great to hear. Thanks for your kind words. It’s fun to run the site. I don’t like seeing other people mocked online though!
Take good care,
Mark
Timely post for us Mark! We live in BC Interior and started with 370k mortgage 10 years ago and have aggressively paid it down. Our current term is up June 1st and we have made decision to use some TFSA savings to pay off remaining balance of ~85k next month.
There is a growing sense of relief on not owing anything to any one. We both have maxed out RRSPs. Will continue to put 5k annually into our RESPs for our kids (13&11) and will be using our new cash flow of ~2k/ month to refill our TFSA’s.
I don’t feel the need to over analyze the “math” both of us feel this is the right move for us.
Awesome, Dylan, and that’s all that matters in the end that you made the best decision for you and your family with the information you have and based on personal preferences too. I’m of the mindset that perfect decisions are of cousre great but they are usually done by everyone (myself included!) in hindsight.
Better to make a series of “good enough” decisions and enjoy your life with your growing family.
Mark
Back in the mid-80’s when interest rates were “interesting”, it seemed prudent to pay down the mortgage as quickly as possible. It was very frustrating early on, owning the front door after a year of payments, but by prepaying and doubling up when possible, we were fortunate enough to retire the mortgage in 7 years – there was a lot of satisfaction in hitting the point where more of the annual payment went to principal than interest!!
There were really only two options available at the time – RSP or mortgage prepayment. One needed to make at least 15-18% pre-tax on an investment in order to make it worthwhile to forego the prepayment option. With TFSA’s added into the mix today, it would seem prudent to spend a chunk of time with Excel to map out the best course of action.
Even with lower interest rates and more investing options today, I don’t envy the younger generation with their overwhelming mega-mortgages! But as with all investments, patience and time are key to getting to that mortgage-burning party at some future point.
I love the TFSA as you know and have been using it as a self-directed investment account since Day 1. I feel for the younger generation who wants to buy a home. I really do. Wages have certainly not kept up with inflation in real estate. I see no issue in renting either. Everyone needs to decide where best to spend their time and money – no point in shaming other people directly and personally.
“But as with all investments, patience and time are key to getting to that mortgage-burning party at some future point.” Yup!
I hope to have such a party in another 12 months.
Cheers!
Mark
Years ago when starting out, we had a house mortgage and a cottage mortgage. We decided to pay off the cottage mortgage first though now I realize financially it would have been better to pay down the much larger house mortgage. For us it was psychologically important to get rid of one, to own one property and then tackle the next mortgage. We achieved ownership in a reasonable time but if I were to do things over, would have put a little more into investments. Doing that would provide some access to cash if needed versus having all our funds tied up into real-estate. After paying off mortgages, we had more to invest but with a shorter window.
Also no excuse for any abusive, negative posts or comments. Read various articles, assess and decide what works for you. Be thankful that many choose to share to allow for dialogue and decision making.
Thank you Mark.
“For us it was psychologically important to get rid of one, to own one property and then tackle the next mortgage. We achieved ownership in a reasonable time but if I were to do things over, would have put a little more into investments.”
I get that. I know for us we paid down mortgage debt in the last few years even when rates were low. Some folks said we were nutty but I knew/felt it was a good decision for us.
In this book, praised writer Morgan Housel wrote:
“We also keep a higher percentage of our assets in cash than most financial advisors would recommend – something around 20% of our assets outside the value of our house. This is also close to indefensible on paper, and I’m not recommending it to others. It’s just what works for us.”
https://www.myownadvisor.ca/the-psychology-of-money/
Yet, as some DIY investors, who may choose to invest a bit differently than some money managers would like us to, you could be targeted for having “the wrong” portfolio and approach to investing, cash and/or other. Seems very odd to me you can praise one approach and yet disregard another.
There is never an excuse to mock people online or in public.
Thanks for your comment,
Mark
I agrée with those who say that one size never fits all. We had our mortgage during the 18% interest years, so we used every means at our disposal to pay that first mortgage as quickly as we could, using accelerated biweekly payments (once that option became available) and putting any extra money that came our way into the annual “pay down the principal” option. Mortgages back then were much less flexible than today. We were so poor in the beginning that my parents had to guarantee our mortgage. Eventually, we were able to buy a nicer home, start an investment portfolio, and relax a bit and enjoy our lives. Our frugality in the beginning paid off, and we have never forgotten to be grateful for what we now have.
I made plenty of investment mistakes along the way and have very much appreciated learning about investing from others. I love your website, Mark, and, like you, I use a hybrid approach to investing. I do keep a healthy “emergency” fund, even though I could probably make more money by investing that money in dividend growth stocks. The sleep well at night factor is huge for us. I have never forgotten what it felt like when buying our child a new pair of shoes earlier than anticipated was an “emergency” that took us three months to pay off. . . The only time we ever carried a balance on our credit card.
Thanks for sharing Jo. Yes, there are some many DIY investors and combinations of “hybrid investing” I suspect it’s too many to count! 🙂 I applaud that. Your ability to have your personal “sleep at night” factor is huge, which can differ from anyone else as you know. Everyone makes mistakes in life I think, they have some “shouldas” or “couldas” and it’s all part of growing and learning. I think anyone that doesn’t have some level of vulnerability in them / doesn’t check the mirror now and again is only fooling other people 🙂
Have a great weekend,
Mark
The mortgage question may have other factors to consider. I’ll give a case in point. A family member is currently having financial difficulty (issues ganged up on them). I’ve offered to help. Their mortgage is around $75K @ 2.75% and up for renewal in June 2025 but they do have extra payment options available. They do not have anything significant in their TFSA. Our two basic options are pay extra over time onto the mortgage, or save until renewal. The earnings on savings exceeds the interest on the mortgage so it was decided to save in their TFSA until June 2025.
As to the other issue, I’ve come to the belief that I’ll try very hard not to give advice. I will however tell what I did and the rationale at the time for taking that action.
Great support, Lloyd. I can’t speak for the family member but certainly if finances are a bit of struggle then the sooner the debt is gone or a lower balance, the better. There are also psychological benefits I believe without too much debt on the books, re: less stress.
This past week was a bit revealing into who some people really are. I would like to believe many people can keep an open mind and are good enough to chose their words wisely but I have too much evidence now that is not the case from some folks in the financial advisory community.
Have a great weekend,
Mark
correction…
Their mortgage is around $75K @ 2.45% and up for renewal in June 2025
Gotcha!
I often tell people there are many strategies and any one of them can be work. Even within every umbrella strategy there are sub strategies. I think heat gets people is shiny object syndrome and jumping around from one strategy to another trying to chase the next big thing.
You’re better off coming up with a plan based on your goals and then sticking with it
Oh, and I’m team pay off your mortgage fast (while also investing 😉). We can’t wait to be mortgage free again.
I’m very much aligned with you, Maria, being goal-based on you’re a great example of that!
Ya, I like paying down the mortgage while investing. So far, so good for us but everyone is different and can find what works for them.
Some financial advisors of course do not believe in that as I now well know! 🙂
Have a great weekend.
Mark
Agreed 100% Maria, a plan that you can stick to trumps anything else.
Even though I’m focused on indexing, I strongly disagree that dividend investing isn’t a strategy.
Yup. It’s unfortunate that some folks can’t have a meaningful discussion but I can’t speak to the motives of others. I have always believed there is opportunity for many forms of investing and styles to meet a goal. Thanks Bart.
Mark
Great stuff, as always Mark. I’m really interested in paying off my mortgage early, but I also want to maximize my investments. So for me, the Smith Maneuver makes sense since it helps me accomplish both of those goals. But as with anything, YMMV, especially considering it’s a more risky strategy.
If you could reverse the clock, do you think you’d consider something like the Smith Maneuver to help you pay down your mortgage quicker? Curious what you’re view is on that topic.
If I had time back, maybe. I don’t really know. There are so many decisions and impacts during a 20-year saving and investing span it’s hard to know how things could have played out. I’m just happy I’m a DIY investor. We could have been debt-free years ago but we opted for investing over killing off the mortgage more aggressively instead.
I enjoy your site too 🙂
Mark