The freedom of actually owning my house would be awesome. But everything I read about finances says it's not rational to do. My interest rate is about 3.5%, whereas I could be putting extra cash into investments that get a higher rate of return.
You seem to know your finances...could you please help me justify paying my house off quicker lol
This assumes even owning your house is a good idea. You are dumping a ton in one asset that you could be getting better returns.
Canadian mortgages are different, so I can only go but what I know here.
In terms of what Raven and Jason said about weighing the opportunity cost of paying off a mortgage fast or paying it off slower and riding any excess cash into investments, that's one of those things everyone is different. When mortgage rates are low, it's way more tempting to ride it in other things. When rates shoot up, it's going to feel safer paying down the mortgage. One benefit of the US is that it seems primary residence mortgage expense can be a tax deductible of some kind which is great. In Canada, we dont get that. Interest expense deduction is totally lost unless it's from an investment property. I know people on both sides of the spectrum. You got the couple who scrape up as much loose money possible and want to be mortgage free asap. Then you got guys who dont give a shit about carrying a mortgage in their 60s because they know on the side they are using that money for investing or other properties. They'll cash out all their shit later in life and maybe pay off the mortgage when they are 70. Who knows
In terms of helping pay off mortgages faster if you go that route (some people like to be more conservative than others) or simply savings some costs, all I can recommend are the following. And this goes for anyone not just you:
1. Variable vs Fixed rate. This comes down to how much you can stomach fluctuating rates. Some people can, some hate it. Traditionally variable rates are better, but in skyrocketing rates like now there is safety to lock in a good rate. It gets to a point if rates drop a lot like before, locking in a rate under 3% seems pretty good. Your rate of 3.5% is solid. Ok, it's not as good as before covid, but way better than the 6% going on now. With the current sentiment being interst rates should drop soon, locking in a high rate isnt a good idea.
2. Open or Closed mortgage. Unless you are rocking a lot of money or know you will pay it off soon with an influx of money, just do a Closed mortgage. It will be a lower rate. It should still give you some flexibility to pay off additional money towards the mortgage like 15 or 20% per year, which should be plenty for most people. Compare rates, but Closed should be cheaper
3. Get a mortgage broker to do the work for you, tell you all the best plans out there and get him to explain things. I've never been able to get a better rate waltzing into a bank myself trying to bargain with them. It makes no sense since you'd think I should get a lower rate since the broker gets a pay out by the bank, but thats how banks work I guess.
Another benefit of brokers is if your property mortgage requires an appraisal, a mortgage broker shoud cover your fee. It's like $300, but a broker probably makes a couple grand off you. For sake of long term business relationships, get your broker to cover it. What should happen with a cool broker is you pay the fee upfront, the mortgage gets approved through your broker so its a done deal, send the broker your bill and he'll pay you back in a week. Out of all properties I've had needing one, I've never paid the fee at the end of the day. Regardless, always ask to get the appraisal fee covered by the bank or broker.
Never get a mortgage through your current banking just because it's easier to process. Look for the best deal. If it so happens the best deal is your bank thats awesome. But dont be afraid to shop around. Out of all the mortgages I've had for where I live and investment condos I dont think one was ever through my own bank I use for chequing.
4. As I said above, paying every two weeks (should be called Accelerated Bi-Weekly or something like that) pays off your mortgage faster as you dump in the equivalent of 1 extra month of payment per year. The interest savings you get long term should be good and a 25 year mortgage should be paid off in like 22. The drawback is you got to budget the extra payments and it will have an irregular payment schedule. So instead of a predictable May 1st Monthly payment or a May 1st and May 15th Standard Bi-Weekly (different than Accelerated), it's now every two weeks. So you will get payments pending the calendar year, not the 1st and 15th kind of thing. If someone is tight on money or how they get paid by work, you got to keep this in mind. So if the mortgage starts on May 1, you'll now have another payment on May 15, and then oddly May 29 and June 12 so you can see it gets weird. But assuming someone doesn't have payment issues, you dont even think about it. Make sure not to pick the standard bi-weekly or semi-monthly plan. All that does is chop up the Monthly payment into installments so it's the same thing end of the day. The Accelerated bi-weekly is the one you pay more so it helps pay off the mortgage faster.
Make note there is a difference between Semi-Monthly, Bi-weekly and Accelerated Bi-Weekly. Everyone can do what they want, but IMO Accelerated Bi-Weekly is best.
5. Aim for a mortgage with as few fees as possible. There might be options regarding Porting a mortgage. Get one that has no porting or lawyer fees involved when porting
6. You'll be offered by the bank to accrue more money off you every mortgage payment which they will accumulate and pay off your property tax for you. Unless you need help budgeting and cant pool together funds yourself to pay it, scratch that option off and tell them to fuck off. Control your own money. Save money to pay off your own tax. If you are conservative and dont want to risk it in the stock market, then put money in a 5% savings account bit by bit yourself
7. When buying a brand new property from the ground up and you got to pay deposits down, the schedule they give you means jack shit. I've wheel and dealed with them to scratch that chart out and my payments are given extended deadlines in writing. You'll typically get a payment schedule like: Now, 30 days, 90 days, 120 days, 180 days, Closing. I got them to extend the 120 to 180, and the 180 to 360 (or 365). Make sure to know the details in it that can be big ballbusters later on like fees for levies. You want them to be as low as possible and capped at reasonable limits like $5,000 tops or whatever. You dont want some kind of open ended or sky high limit they can grill you later when the building is complete.
Investment properties I've always bought are condo units. You can get an idea if it'll be a good valued unit or not based on location alone. But other stuff is very important, at least in my experience. Aim for a mid or high floor, aim for a unit with a good view (like at the water or open spaces and not looking at another building. Get a sense if the open view is going to be a forever open view or possibility of it being blocked in the future if a another condo pops up blocking). End of the day, the property will be more valuable if you got a good view. And corner units go for more too as people will pay more to get double views in two directions. Always buy an optional parking spot. Some will come with the spot, but if it's optional buy it. I made the mistake in 2010 buying a unit with no parking to save money thinking all the downtowners wouldnt give a shit, ride bikes and take transit, and fight for my unit as it'd be priced cheaper. It was the opposite, it was a tough slog to sell at a good price as people want a parking spot. Trying to go back to building management hoping there is a spare parking spot to buy and link up to your unit got denied in my case since they had no spare spots to sell. So I was fucked
