Weekend Reading – Is it worth paying off your mortgage early?
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:
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.
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.
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.