Weekend Reading – Mortgage vs. Investing Debate

Weekend Reading – Mortgage vs. Investing Debate

Well Hello…!

Welcome to a new Weekend Reading edition, discussing the mortgage vs. investing debate.

Before an update on that theme, some recent posts:

I shared some free retirement income case studies on my site you could learn from, in this Weekend Reading edition.

I have my own preferences about where we stash cash, including planning for any upcoming near-term expenses, so I wondered what others are doing: where to put your cash right now…

Where to put your cash right now

Weekend Reading – Mortgage vs. Investing Debate

Weekend Reading - Mortgage vs. Investing Debate

Headlining this Weekend Reading edition, my friend and fan of this site Rob McLister posted a good article about avoiding this obsession: paying off your mortgage early – since it may not be “the winning play”.

I would have to agree with him for the most part because we delayed aggressively paying off our mortgage early in our 40s and instead, focused on balanced priorities of mortgage reductions WHILE maxing out our TFSAs and RRSPs over the last 10-15 years.

Probably the single, biggest, apparent reason to prioritize paying down your mortgage early (vs. spending money on other things, investing your money in parallel, other) is that it saves you money. 

That’s good!

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 if you don’t pay off the mortgage sooner than later.

When we had a mortgage (we became mortgage-free earlier this year!) we used the following tactics over the years to slowly kill off that debt:

Rob McLister’s thesis in his recent article suggested extra mortgage payments trigger opportunity costs – if your returns after taxes are higher elsewhere. 

I had similar thoughts when I wrote my definitive answer to paying off your mortgage or investing instead.

It’s important to consider what value and financial benefits where your extra mortgage payments could go instead, and Rob listed a few in his post:

  • Paying down higher-interest debt, first.
  • Making Registered Retirement Savings Plan (RRSP) contributions, whereby you get a tax deduction (now) and tax-deferred growth moving forward based on assets you can own.
  • Making Tax Free Savings Account (TFSA) contributions.
  • Other…

At the end of the day, I think if you can be comfortable with your existing mortgage rate, terms, and payment schedule, then most should try and strike a balance between investing now while paying down their mortgage vs. extreme focus on doing one thing over the other. 

I’m biased with that conclusion since that’s what we did all along: we had a plan for prolonged lower interest rates and we followed it. (Yes, even from 2012!)

“I’m no financial guru but I see this prolonged low interest rate environment as a short-term blessing to solidify my financial plan and kill more mortgage debt on the cheap. 

Pay down debt and make steady investment contributions. A simple two-step dance that is bound to help us realize our 7-figure portfolio dreams (without debt) in the coming years.

This year, I’m going to be a maverick. I’m not going to borrow money like the low interest rate environment entices me to do and we’ll pay off more of our mortgage debt instead. 

I look forward to hearing from you about your mortgage journey and decisions to become debt-free like we are and/or where you are on your debt-free journey too.

Image source for post thumbnail: Pexels.  

More Weekend Reading – Mortgage vs. Investing Debate

Ben Carlson posted on X and on his site:

“Are we in a new era where large cap stocks consistently outperform b/c of index fund flows?”

Quite possible.

When it comes to the U.S. stock market, I feel the same way:

“So it’s not like the entire S&P 500 has ridiculous valuations. It’s more like the S&P 10 has a valuation premium while the S&P 490 is more reasonably priced.”

When is the party going to end?

Nelson at Canadian Dividend Investing shared how this early retiree pays essentially $0 in taxes using / owning Canadian dividend paying stocks – assuming you have little to no other income.

As a follow-up to my RRSP Bucket Approach, some additional insights from some U.S. advisor professionals on the subject using a five-bucket approach:

“The first bucket is predicated on expenses for the first three years of retirement and contains cash. The second bucket contains very conservative assets, “because they’re up next,” Schoenhardt says.

Bucket three is in growth and income investments, and four is more focused on domestic growth. Bucket five contains global growth as well as small-cap investments, which may be relatively riskier.”

Five-Bucket RRSP Bucket Approach - My Own Advisor March 2024

Five buckets seems a bit much. I’ll focus on just three for us, and see how that goes…

Over at Visual Capitalist, Tesla could be permanently out of The Magnificent Seven??

Interesting data related to our Big-6 banks – banking deposits with thanks to @HanifBayat.

Dividend Growth Investor wrote about the return of the dividend.

“When management teams are swimming in cash, they could focus on projects of dubious value, get more perks like corporate jets, and other silliness. That dividend provides focus and discipline to the capital allocation process.”

At FIRE We Go! fans of this site Gean and Kristine expose their early retirement travel budget. Kudos to them!

Save, Invest, Prosper!

As always, check my Deals page – partnerships and discounts to help you make the most out of your money – some of them you can’t find anywhere else!

Check out my partnerships with:

  • Dividend Stocks Rock (including my deep lifetime discount from Mike!)
  • 5i Research
  • StockTrades.ca
  • LegalWills
  • Borrowell 
  • and more!

As always, you can also consider reaching out here for some low-cost financial projections services – anytime.

Cashflows & Portfolios

I launched this service with my DIY investor good friend – a service founded by DIY investors for DIY investors without the conflict of any advice, without costly fees (like some folks charge), while offering money-back guarantees because we’d expect that as DIY folks ourselves…

In fact, there are now two (2) low-cost services to choose from:

  • Done-For-You – we do the work and data entry, and provide your reports OR 
  • DIY – whereby you do all the work, you do your own data entries, and you get your own results in the software – we essentially open up some professional financial software for you to use to be your own retirement income planner!

As a My Own Advisor reader, you always get a discount off either service. Just mention my site. That’s it.  

Enjoy your weekend. 🙂

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.

18 Responses to "Weekend Reading – Mortgage vs. Investing Debate"

  1. Mortgage rates were high in the 90s and I wasn’t investment savvy so mutual funds didn’t make me money. Our take was to pay off the mortgage because we couldn’t make as much as the mortgage interest rate. In either case, we always maxed out RRSPs, took advantage of employer matching, and used the bulk of annual bonuses to pay down a chunk of the mortgage. Towards the end of our mortgage, rates were low but seeing the principal drop like a rock every year felt so good. Not having a mortgage gave me the courage to start my own consulting business, knowing we could take a chance because our monthly expenses were so low. That catapulted my earnings and savings rate, so it was the best thing I could have done. If I held onto the mortgage, I don’t think I would have taken a chance on myself.

    Reply
    1. Love it, Sandra. re: “Not having a mortgage gave me the courage to start my own consulting business, knowing we could take a chance because our monthly expenses were so low.”

      Amazing what debt-free can trigger including some risk-taking too.
      Congrats.
      Mark

      Reply
  2. Mike NOZDRYN-PLOTNICKI · Edit

    Mark
    I think that for many people, and I am one, there is huge value to be the owner of your home… with no attached mortgage. It spurred us to paying off our mortgages twice, Once in the 1980s when the interest rates were ussurous and again in the early 1990s when they were almost as bad.
    The point here is that the lack of a mortgage frees up a chunk of cash for other important stuff each and every month. All the while with that warm glow of being mortgage free.
    Love your site.
    Mike

    Reply
    1. Thanks, Mike. Very kind of you!

      Yes, we are noticing that now in fact. Without servicing debt, it frees up a LOT of cashflow per month and/or the option to work less than we need to. 🙂

      Feels great to be mortgage-free.

      Any big plans for 2024?
      Mark

      Reply
  3. When I was a young husband and father, there was no money left over for anything beyond a small mortgage, utilities and food. After a divorce and remarry, followed by 15 years of renting, we paid off debt, maxed out RRSPs, TFSAs then dumped any extra money on a 30 year mortgage. Thanks to good paying jobs, double up monthly payments and annual lump sums on the principal, we were mortgage free after only 5 years. Felt good knowing that both our present and future selves were being looked after financially.

    Reply
  4. CJ (57, will retire at 59) · Edit

    Mark,

    My upbringing totally framed me on this one – the philosophy was: minimize debt / whatever debt you did incur – pay off as soon as possible / live within your means / when you need to buy something, Mom always said “as yourself if it is necessary” / and try to be “to the good” financially (increased assets) each month!

    CJ

    Reply
  5. A good topic for debate. I’m sure your upbringing would influence your decision. In the world of living within your means, which I tried to, if you had a mortgage and a car, these wasn’t much left at the end of the month to be creative with, when you were first starting out. For sure all the things you mention make a difference in a 10 – 15 year span (big down payment, better mortgage rate, additional payments).
    I tended towards the investing side as opposed to mortgage pay down.
    If I had to do it all over again I would go the investing route but be more aggressive on the investments (90/10, or 100% equity) as time would be on your side.
    The one thing not mentioned so far is if your company has a matching RRSP benefit. It definitely sways you to invest as you get free money when you participate.

    Steve

    Reply
    1. Yes, interesting about my upbringing. My parents struggled with debt and higher rates in the early 80s – when I was growing up. I have no doubt I fear a bit of debt / continuing to carry lots of debt because of that.

      I totally agree with taking advantage of any RRSP employer-employee program at work. Great point.
      Mark

      Reply
  6. For me, although I saw the benefit of hanging on to my low-interest mortgage and paying it off gradually (and having the discipline to invest my $ in higher-interest investments), the stress-reduction benefits of not having a mortgage were worth a ton, more than the incremental benefits of hanging on to my mortgage. Mark, I bet it feels like a weight lifted off your back to have your mortgage paid off!

    Reply
  7. Do both at the same time: pay down your mortgage and invest cautiously. Make effective use of the different ways to pay down the mortgage faster and invest any extra money in an index fund (safer than individual stocks). When the mortgage is paid off, take more risks in investing. Don’t forget to make full use of tax-deferred/sheltered vehicles like TFSA, RRSP, RESP, etc. Also, enjoy your social life to the best.
    Thanks Mark for this interesting topic.
    Wish you all the best.

    Reply
    1. Well put, Ken. We did the same thing – did a bit of both but we did pay off the mortgage a bit more in fact when $$ was cheap, borrowing costs were low, and our mortgage balance was higher. I figured less debt, at eventually higher rates, was going to be a smart move. Worked out!

      Have a great weekend,
      Mark

      Reply
  8. Lloyd (63, retired at 55) · Edit

    This choices were a lot less complex in our day. RRSP, Mortgage, RESP, or non-registered saving/investing. Now, there are a handful more choices that *could* easily enter the picture. RDSP, FHSA, TFSA off the top of my head. All with their own rules and applications.

    For us, when we had a mortgage, we used overtime and any found money (part time work, tax rebate) to top off the RRSP first. As we were limited due to the pension plans, this wasn’t difficult for most years. Once the RRSP limit was reached, we switched to increasing mortgage payments. Non-registered equity investing was never considered due to the complexity of trying to partake (mostly pre-internet and online functions).

    One would have to be a lot more engaged than I was with the products and available programs in our current era. I guess I’m old? 😉

    And speaking of old…a 19-25 year bucket ain’t in my world anymore. Heck, I hesitate to buy green bananas.

    Reply
    1. Ya, I blame our government for creating the alphabet soup of accounts that you need an advisor to help you out on now 🙂

      Certainly, to your point, you can keep it very simple:

      1. Pay off your debts.
      2. Max out TFSAs and RRSPs and if you have kids, contribute to their RESPs.
      3. If you have money leftover you are doing well, spend it, live your life or save and invest in a taxable account.

      Having a 19-25 year bucket doesn’t work for me either!
      Have a great weekend.

      Reply
  9. I don’t believe it has to be an either pay off mortgage or invest in your RRSP or TFSA decision. I did weekly mortgage payments and had money taken from my account each pay day that was invested in my RRSP. Dollar cost averaging. Then when I got my tax refund in April the refund was applied to my mortgage. I also don’t think there is a one size fits all on this discussion. Everyone’s needs and income is different and they all have different priorities. Lastly today young people have a really hard time getting into the real estate market with the high prices so for those that can’t get get into the real estate market the decision is straight forward. Max out your RRSP and your TFSA and then put excess into an unregistered account.

    Reply
    1. Great stuff, Don. I appreciate those comments.

      I was there once too – re: younger and wanting to get into a housing market at a low salary. I do believe it is harder today due to housing supply issues…

      I also like the call on maxing out RRSP and TFSA, still trying. 🙂
      Mark

      Reply

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