Comments on: The Mortgage Pre-Payment Debate

By: One thousand posts, One million visits and Giveaway

One thousand posts, One million visits and Giveaway — Wed, 22 Oct 2008 03:19:10 +0000

[...] 1,030. Though a thousand posts sounds impressive, the underlying message has been quite simple: Pay down debt. Track your spending. Diversify. Avoid complicated investing strategies. Leverage sounds great, [...]

By: Canadian Capitalist

Canadian Capitalist — Mon, 15 Sep 2008 01:10:04 +0000

SOL: It’s a very tough question and impossible to answer because it depends on future market returns. However, I’ve moved towards the camp that it is better to pay down the mortgage because the overwhelming evidence is that most investors achieve poor investment returns — even in great bull markets.

By: SOL

SOL — Sun, 14 Sep 2008 02:10:22 +0000

I have one question: Is it better to let go of a non-rrsp portfolio to pay down a mortgage?
SOL

By: Kevin Malone

Kevin Malone — Thu, 26 Jul 2007 03:37:57 +0000

Another advantage…if you can get the 25% you can start the smith manoeuvre immediately

By: HarvardCircus

HarvardCircus — Mon, 23 Jul 2007 13:37:20 +0000

Just a note to PhilS & Chris H. Don’t feel that you got screwed by the discharge fee the lender charged you. You wanted a loan, one of the costs of perfecting the lender’s security is registering the mortgage. Once you paid them off, that mortgage has to be discharged (which is a good thing for you in the long run if you want to sell the property or re-leverage it) and the government does charge a fee for this service that someone has to pay. Its a regular cost of doing business. That said there is no “market premium” for this sort of thing, lenders have a lot of discretion as to what they charge as you can see from the difference the two of you paid (the government fee is a lot less than what you paid). If either of you get a mortgage again (or someone reads this who is looking for a mortgage) just ask the bank to “waive any discharge fees” in your negotiations, if they want your business they will (but make sure its written down as 15-25 years from now you likely won’t be dealing with the same person!). Every standard mortgage document I have seen has the discharge fee quoted right in it, so you should be able to say to your “friendly banker” (ya right) what’s $200 if your getting tens of thousands of dollars of interest. Try it hopefully you’ll save some $!

By: David

David — Thu, 11 Jan 2007 02:02:06 +0000

Regarding the 5%.
At least one financial advisor claims thatthe savings are actually the interest rate plus the interest rate*your marginal tax rate. His reasoning is that the money you save in future interest costs (i.e. the annual interest payments you never make) would have been from after tax dollars. Thus pre-paying your 5% mortgage is equal to earning at 7.7% in the market. You would need to earn enough over the 7.7% to address the tax liability the investment instrument costs.

This is discussed in the middle of this document:
http://www.centa.com/CEN-TAPEDE/2003/expert/expert119-01.html

David

By: Meadow

Meadow — Wed, 10 Jan 2007 23:37:52 +0000

“Hands in my pockets” ad?

More like Rick Mercer’s spoof ad, “Knee in my package”!

Meadow

By: canadian dollars

canadian dollars — Wed, 10 Jan 2007 21:34:48 +0000

Here’s how I see it. When I’m ready to purchase a home I want to put down as large of a downpayment as possible so that my mortgage payments won’t be as high. I’m sure my cash flow will be tighter then as I plan on having children. That being said, any amount that is left over after the mortgage payments will be invested or put into savings.

To me it’s the difference between 6 and a half dozen. Whether I put down more for the downpayment or less, the end result should be relatively close in my opinion.

By: growth in value

growth in value — Wed, 10 Jan 2007 17:04:07 +0000

You can probably add “the homeowner’s own aversion to debt and their psychology as an investor” to the variables side of the ledger.

At its core this is a logical financial question but as we all know a lot of the answer comes from the homeowner’s mentality. If paying off a mortgage as fast as they can is important to the homeowner, the best thing they can do is to do that — even if you can explain to them, with flashy charts, why a larger equity portfolio would probably be better for their bottom line in 20 years.

There’s no accounting for personal tastes.

By: Canadian Capitalist

Canadian Capitalist — Wed, 10 Jan 2007 17:03:38 +0000

Al R: Good point and we wish we hadn’t waited to save 25% before buying a home. But I can tell this for sure only in hindsight. When we bought, I was working and my spouse was not and so many people in high-tech were losing their jobs in Ottawa that it seemed prudent to wait and rent. So, the decision to wait or buy right away depends so much on the personal situation.

Phil & Chris: Its news to me that we have to pay to get rid of the mortgage. I get reminded of the “hands in my pocket” ad whenever I think of our banks. They do have a finger in every pie. Good thing I own a couple of banks!