Why I Won’t Pay Down My Mortgage

Paying down your mortgage; for most, that’s the goal. Pile every spare dollar onto it and get it gone as soon as possible. I have to say that in today’s financial world, when mortgage rates are so low, I couldn’t disagree more.

I don’t consider my mortgage to be “debt”. I actually see my mortgage as a valuable tool for helping me increase my wealth! Using the equity in my mortgage to add to my nest egg is part of my long-term strategy for getting ahead.

The math is simple, really: My mortgage costs me 3% (or less, these days), but if that equity was invested, I could be making anywhere from 6% to 25% or more on it in the stock market.

I think the people who are opposed have this to say: “But once my mortgage is paid off, I can invest the amount of my mortgage payment each month instead.”

All right. Let’s run the numbers:

Using the following facts for each scenario:

• a house worth $300,000
• a fixed rate mortgage at 2.99% renewed every 5 years
• a 20 year amortization
• bi-weekly payments on the mortgage
• 6% return on investments

• Scenario A: you pay off your mortgage at 50 years old and thereafter invest your $765.94 bi-weekly for the next 15 years. You end up with about $480,000 in your investment account at 65 years old.
• Scenario B: starting at 30 years old, you take the equity available to you each 5 years when you renew your mortgage (about $60,000 every 5 years) and invest it. You would have about $1.1 Million in your investment account at 65 years old. Go ahead at that point and pay off your mortgage all at once (about $240,000 owing), and you’ll still have about $860,000 invested.

Another opposition I hear is: “You shouldn’t retire with a mortgage still owing.”

Oh wait, I just solved that problem too.

Add to this the facts that:

• In both scenarios you paid about the same amount out of your pocket over the 35 year period (in scenario A you pay the bi-weekly payment to the mortgage and then into your investments, and in scenario B you pay the bi-weekly payments into the mortgage for the entire 35 year period).
• You and a spouse could almost put that entire $60,000 into TFSA’s ($5,500 each allowable per year), so now, when you withdraw the entire amount to pay the mortgage down when you’re 65, there are no tax implications.
• In Canada, when you borrow for the purpose of investing, the interest on the loan is a tax deduction.
• The value of your house will increase regularly, making the amount of equity available to you more and more each time you renew the mortgage.
• Since you paid the mortgage down at 65, you now have an extra $765.94 bi-weekly burning a whole in your pocket from that point forward.

Of course, the fundamentals are what make this work; i.e: the fact that the amount of interest you can reasonably expect to make on investments is about twice what you’ll pay for a mortgage. When these stats change, so do the end results. But until then, I won’t be paying off my mortgage!