Paying Down Your Mortgage? - Not So Fast!!
The days of having such low-interest rates have challenged us to think about how we deal with mortgages. Many people have the attitude of paying down debt as fast as possible to get rid of it as fast as possible. That is the mentality of many people. If you are closer to my age, you can easily remember the days when interest rates hovered around 20%. I well remember the days when my dad went to the bank to borrow some money at these high rates to expand the dairy farm, only to come home wondering how he could ever afford the high cost of mortgages needed to grow a business. Every last bit of extra money was used to pay down this “monster” called debt for fear that you would lose everything if you couldn’t afford the monthly payments. Many of our parents grew up in an era where they feared debt and the devastation that could bring to business and family life.
What we grow up with and what we learned from when we were young becomes ingrained in our minds, and some people have a hard time changing that old school mindset.
With interest rates being as low as they are, it challenges us to rethink how we handle debt. All of a sudden debt can be our friend and a very strategic tool for wealth to be built. It can be a huge contributor to our individual buying power when it comes to acquiring cash-flowing assets.
In my discussions with our investors at Glenroe Lending, this topic often comes up. I love to challenge people to rethink their strategies when it comes to paying down their mortgage on their home. With interest rates well below 3% for renewals these days, does it really make sense to pay down extra debt than what we are required to do?
My answer to this is no. It doesn’t make good financial sense.
Paying down debt needs to be compared to what other uses you could use excess cash for. Paying down debt is like buying an investment that yields the same percentage return as your mortgage rate, which, as mentioned, can be well below 3%. Why would you use cash to pay down extra debt if you could invest it at a much higher rate in a cash-flowing asset that yields cash in your pocket every single month? That doesn’t make good business sense to me. One needs to take the time to make sure they are buying cash-flowing assets, ones that put money in their pocket each month rather than capital gain assets which take time to “hopefully” grow. Taking time to research what you purchase as assets is extremely important.
So how about this as a suggestion?
If there is extra cash available to pay down your mortgage, why not consider investing that in a cash-flowing asset that pays high-yielding interest each month? Then potentially use that interest to pay down the extra debt or even increase your monthly mortgage payment? This way you get to pay down your mortgage quicker and hang onto the excess cash in a cash-flowing asset. By employing this strategy, you pay down your mortgage quicker AND create options for new passive income coming from wise investment choices. Now, to me, that is really clever investing and utilization of money working for YOU!
A real win-win situation!!!
If this is something you would like to discuss further to analyze some possible options for you, I would love the chance to talk that through with you. Feel free to connect with me through the website for a time that works for both of us. I look forward to hearing from you. Before you make your next extra mortgage payment take some time to think this through and decide whether that is the best use of your hard-earned money.
Kind Regards,
John Heeney
Glenroe Lending
“We build LEGACY to create TRANQUILITY”
john@glenroelending.ca
519 808 7370
