There are so many reasons to pay off your mortgage early. Especially if you live in Canada.
I think we can all agree that owning the home of our dreams is great. But the big fat mortgage that comes with it sucks.
For some, paying off that mortgage early seems like a hopeless feat so they give up. Others rise to the challenge and manage to pay it off years ahead of time.
It’s probably the greatest personal finance challenge that any of us will ever face.
If you have a big mortgage don’t be discouraged, instead get focused. Think about how different life would be when you’re mortgage free!
Here are my top 10 Reasons to pay off your mortgage early.
#1 Mortgage Interest in Canada is Not Tax Deductible
We pay our mortgage in after tax dollars. Unlike rental properties where you can deduct the mortgage interest on your taxes, a home mortgage is not tax deductible. So there is absolutely NO incentive to not pay it off as quickly as possible.
#2 Mortgages in Canada are renewed on a 5 year basis which means interest rate risk.
Sure the prevailing interest rates are super low today, but that may not always be the case. As we’ve seen over the past 2 years, central banks are not afraid to aggressively raise interest rates.
Unlike the US where folks can take a 25 or 30 year term on their mortgage, in Canada we typically renew every 5 years. So we have absolutely no control over what the prevailing interest rate will be come time for renewal which brings in an element of risk.
#3 A Mortgage is a Terrible Thing in Retirement
Every financial advisor counsels their clients to never carry debt into retirement, especially a mortgage. It’s hard enough to cover your basic needs on a fixed income, let alone paying off your home too.
#4 Investing is Risky, Killing your Mortgage is a Guaranteed Return
There’s lots of articles circulating on the web about why it’s better to invest instead of paying off your mortgage. These articles tend to focus on the long term stock market performance versus the rate of return on paying down the mortgage.
But here’s the thing: over the long term, anything is possible. If you can handle the volatility of seeing your investments move up and down all the time then maybe the investing route is for you. But if you can’t, then maybe the peace of mind of eliminating the mortgage is the better option.
I’d also like to add a word of caution too. The stock market is at the highest its ever been today and so are home prices; while interest rates are at their lowest in over 30 years.
What do you think will happen when interest rates inevitably rise? Not only will stock market investments decline in value, but so too will home prices. To add insult to injury, the mortgage debt outstanding on that home will have a higher interest rate.
So the equity in the home will go down as will the value of your investments, while the mortgage debt remains and actually costs you more to carry. That is the risk facing many homeowners today and I’m not sure anyone really understands that.
#5 Interest Rates are Low so More of Your Money Goes Toward Paying the Principle
When interest rates are low, more of our payment dollars go towards paying the principal. When interest rates increase, more of our dollars go towards paying the interest portion and not the principal.
This will help you tremendously down the road if you get hit at renewal time with higher rates.
#6 Not Having a Mortgage Dramatically Reduces Your Cost of Living
I don’t know about your monthly budget but my mortgage payment is the largest monthly bill that I have. If I didn’t have that payment I’d be set! If a person has no mortgage and multiple streams of income then financial freedom is possible!
#7 A Debt-Free Life is a Stress-Free Life!
It’s a fact, everyone stresses out about debt and that includes our mortgages. I’m sure you’d all agree that not having a mortgage would be a huge weight lifted off your shoulders.
#8 Having No Mortgage Increases Monthly Cash Flow
What would it be like if you didn’t have to shell out a few thousand bucks each month for a mortgage.
Just imagine the cash you’d have to invest for retirement or even to just live a little!
#9 Don’t Follow the Herd, Be Different!
Whatever you do, don’t just accept that it’s okay to have a mortgage for 25 years! Financial freedom is a worthy lifelong pursuit and it won’t happen as long as your big fat mortgage is weighing you down.
#10 Live life on Your Own Terms
If you didn’t have a mortgage would you stay at your current job, or would you do something different that interests you? Maybe you’d find more fulfilling work.
Paying off our mortgage early relieves us of the slave mentality.
Paying off our mortgages have a ton of mutually reinforcing benefits: less stress, more money, less financial risk, more opportunity to pursue other things in life.
Having debt holds us back from a lot of things in life. If you want to be different then start paying off your mortgage early!
Thanks for reading my Reasons to Pay Off Your Mortgage Early. For info on some strategies to pay off mortgage check out my post on How to Pay Off Your Mortgage Faster.