For many homeowners, the concept of paying off their mortgage as soon as possible is a lifelong dream. In a world of managing monthly bills and other seemingly endless expenses, eliminating your largest monthly payment can feel like you’ve achieved financial freedom.
Though living life mortgage-free can have plenty of benefits, financial planning within your mortgage also has its upsides.
We spoke with mortgage coach Emily Miszk about the advantages of paying off your mortgage early and ways you can use your mortgage to grow your wealth long-term.
Why Do Some Homeowners Pursue a Mortgage-Free Lifestyle?
“The primary factor in deciding to pay off your mortgage early is ultimately psychological,” says Emily. To put it simply, managing debt and finances can be very stressful for Canadians. Having one less monthly payment to worry about (let alone your largest one) can offer homeowners peace of mind.
Emily notes, “There’s a lot of pride that comes with being debt-free. Paying off any kind of debt often comes with a lot of celebration – and it should!” Eliminating debt takes a lot of hard work and is absolutely worth being proud of. Many homeowners even have parties celebrating their final mortgage payments.
Peace of mind is priceless. But when it comes to your mortgage, you may prefer to use it strategically and grow your wealth depending on your unique situation.
The Pros of Paying off Your Mortgage Quickly
Paying off your mortgage early has its financial benefits too. If you have consistent income, eliminating a large monthly expense means having extra cash flow each month to put into investments or emergency savings.
There are essentially two ways you can pay off your mortgage quickly:
- Opt for a shorter amortization period when you are first applying for the mortgage. The pro here is that you will pay less interest on the loan and your mortgage will be paid faster. However, your payments will be higher.
- Pay off the mortgage early. If your financial situation changes or if you simply want to pay the mortgage off early, you can absolutely do so. However, Emily notes that paying it off early could cause you to incur fees or financial penalties from your lender.
Depending on where you are in your mortgage, these fees may outweigh the savings. Your financial planner can help you calculate these differences in order to help you in your decision.
Short Term Benefits of a Mortgage
While paying it off quickly has its benefits, there are still plenty of ways to find peace of mind and financial success within your mortgage. According to Emily, “In 2022, having a mortgage isn’t a bad thing. Economic factors have changed drastically over the past few decades.”
Think of this way: Back in the 1980s, mortgage interest rates were in the double digits, that could be like using a credit card to buy a house today. Although home prices were significantly cheaper, it made the most sense for homebuyers in those days to pay off their mortgages as quickly as possible to reduce the interest they paid.
Today, with interest rates at a record-low, and home prices at record highs, it might make more sense to invest your money elsewhere since the cost of borrowing is negligible. However, it’s all up to you and your unique financial goals.
“A mortgage is more than just a rate and dates of payment. In fact, your mortgage should play a large role in your overall financial planning,” Emily says.
For example, homeowners can borrow against the equity in their home (the difference between your home’s market value and what is left owing on your mortgage) to fund the purchase of investment properties, pay for home repairs and renovations, or even bolster your income in an emergency.
“A great financial advisor can help you make the most out of your investments alongside your mortgage,” advises Emily.
Paying off your mortgage and building equity in your home can help you grow your portfolio with real estate investing. Want to learn more about investing in real estate? Check out these resources.
- What to Look For in an Income Property
- Promising Toronto Neighbourhoods For Investors
- Should You Buy or Rent Your First Condo
The Bottom Line
Living debt-free is a dream for many Canadians, but not all debt is equal. In some cases, your mortgage debt can actually work for you and help you build further generational wealth.
A mortgage-free life and successfully managing your debt both have their advantages. Like any big step in life, getting an expert opinion before making a final decision is always a safe bet.
If you have concerns about your mortgage or feel ready to pay it off early, Emily recommends you speak to multiple professionals before making a decision. Your broker, financial planner and realtor can each offer unique value and insight about managing your mortgage debt.
Curious about making changes to your mortgage? As a Mississauga real estate expert, I can offer personalized support and help you make the best choice. Get in touch.