Determine your priority. Pay down the mortgage or invest?
Paying off a mortgage quickly certainly has great rewards, like being mortgage free sooner and saving tens of thousands of dollars in interest payments. Still, when borrowing costs are cheap – as they are now and likely to remain so for a while – it may be more financially savvy to make minimum mortgage payments and invest your money instead. When long-term investments outperform low-interest rate mortgage payments, putting extra funds into long-term equity investments could put you in a better financial position down the road.
According to certified financial planner Brian Fry, “If you project a higher rate of return for your investments than your mortgage’s interest rate, then you should invest the savings. [But] If you project your mortgage’s interest rate to outperform your investments, then you should pay the mortgage off aggressively.” That means, for instance, if your mortgage rate is higher than the rate of return on your GIC, then paying down your mortgage early is the better option. But Fry also warns that it’s crucial to consider how far you are from retirement and your unique personal financial situation before opting for investing instead of paying down your mortgage.
Rob Carrick, finance columnist for The Globe and Mail, says that while the comfortable move right now is to pay down the mortgage, homeowners may miss out “on a once in-a-decade chance to build long-term wealth by investing in beaten-down stock markets. Those markets may get beaten down some more, but they’ll come back with a vengeance at some point.”