Everybody who is a homeowner dreams about that mortgage burning party. Canadians have always put a high priority on paying off their mortgage debt and sometimes maybe a little too high. Paying off debt is always a good idea. Wanting to be mortgage free is a good goal. Making it your only goal may not be as sound.
Traditionally, paying off your mortgage as quickly as possible has been seen as one of the best routes to financial success. Interest rates used to be much higher than they are today. Lower interest rates today often mean that it makes more sense to take your focus off of your home and mortgage and view them as part of a more diversified investment strategy. Over the past 10 years, stock markets have tended to deliver rates of return that are markedly higher than mortgage interest rates. Instead of putting every spare penny into your low rate mortgage, it makes sense to invest through RSPs or TFSAs. There is also protection in diversification. Having a collection of smaller assets can be useful. If money gets tight, you could sell a lesser investment in order to pay other bills.
Of course, markets do fluctuate and some people prefer the stability of the guaranteed return that comes with paying down a mortgage. It is a form of enforced saving. There is also a sense of security that comes with mortgage free home ownership in the case of job loss or a sudden drop in income. Paying off your mortgage faster also frees up equity faster and home equity can become an investment in itself. Often, it makes sense to use the equity on your house and buy another rental property, add a rental suite to your house, or even become a private lender and work with a reputable mortgage broker to get up to 10-12% annually. Equity gives you so many ways to increase your investment options.
While it is never a bad plan to pay down your mortgage faster, it is always a good plan to diversify, spread around your assets, and your risks. Your lending specialist can then help you find the best plan for you. – Tamara Tkachuk, www.bayviewfs.com