Author Topic: Pay Mortgage?  (Read 3532 times)

Deano

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Pay Mortgage?
« on: December 02, 2012, 02:41:24 PM »
Hello everyone, I've got a scenario that I would love to hear different takes on.

My wife and I are teachers in Ontario, we're on track for what is currently one of the sweetest pensions you can find anywhere. We have a 198k mortgage at 4.1%, no other debt and a growing nest-egg (by about 2.5k a mo currently).

Right now our money is not doing much. Really we've just gotten started in our serious savings after wiping out all of our student debt. I'm wondering if it is sensible to crush our mortgage quickly or take our time and do some diy investing (which I know little about, other than mutual funds eat money). Now the one caveat I have is that I don't fully trust our pension. The government currently matches what is put in and it is a defined benefit pension. Some of it has already been de-indexed however and I fear that trend will continue. Politically, it's becoming less difficult to roll back wages/benefits of public sector workers in Ontario so I see my pension diminishing without doubt. Should that change things? I'm keen to avoid putting all of my eggs in one basket and I'm really not sure what way to go.

If anyone is interested in helping suss this out I'd be most appreciative! I can supply other details as necessary.

« Last Edit: December 02, 2012, 02:49:07 PM by Deano »

Another Reader

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Re: Pay Mortgage?
« Reply #1 on: December 02, 2012, 02:56:42 PM »
In your shoes, I would try to refinance the mortgage to get that interest rate down.  To offset pension risk, I would fully fund both Roth IRA's, if I were eligible.  I would also check with your district(s) to see if 457 (deferred comp) plans are available. You can stash a lot of money in those (for 2013, up to $17,500 each)and if you leave before age 59 1/2, you can draw on them without penalty.

You don't state your age, so I will guess early 30's.  I would discount the pensions and social security to some extent if that is correct.

If getting rid of the mortgage is top priority for you, compare the payment on a 15 year mortgage, which should have an interest rate of under 3 percent, to your current payment.

Congratulations on wiping out the student debt!

Edit:  If you mean Ontario, Canada, not Ontario, California, then none of this applies.  Except the congratulations.
« Last Edit: December 02, 2012, 03:02:26 PM by Another Reader »

Self-employed-swami

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Re: Pay Mortgage?
« Reply #2 on: December 02, 2012, 03:05:48 PM »
 I think he meant Toronto, Ontario.  I recognize the political stuff being mentioned :)

Self-employed-swami

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Re: Pay Mortgage?
« Reply #3 on: December 02, 2012, 03:07:55 PM »
Also, when does your mortgage come up for renewal?  There are some FANTASTIC early renewal specials out there, at around 3%.  I'd start hammering away at the mortgage myself, while also TSFAing some of it.  I just renewed my mortgage in October, and I was at 3.09, and it went down to 2.99!  Phone your bank, and see if they have any early renewal specials.


Deano

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Re: Pay Mortgage?
« Reply #4 on: December 02, 2012, 03:20:18 PM »
Ah, thanks for the replies so quickly! Well, it is Ontario Canada (I'm not in Toronto, you could probably triple my mortgage if I was!). My Credit Union doesn't have any renewal specials and I'm 3 years away from renewing. I realize my rate is not so good but my mtg gives me lots of flexibility in terms of payments so I'm ok with it as long as I'm going to hammer it, otherwise I'll be looking for a better deal when I'm able.

Both my wife and I are mid 30's and have only been teaching full time for 4 years (supply taught and lived out of a suitcase for many years!).

I'll try to keep things apolitical, but it is a factor effecting my decisions, so it has to be mentioned.

Self-employed-swami

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Re: Pay Mortgage?
« Reply #5 on: December 02, 2012, 05:25:49 PM »
Sorry, I'm not sure where I got Toronto from :)

KingCoin

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Re: Pay Mortgage?
« Reply #6 on: December 02, 2012, 05:47:09 PM »
There's no right answer here. You're looking at a risk free 4.1% vs a higher long term expected return in the stock market. With Canada's consumer leverage creeping ever higher and the potential implications of that, I'd be marginally inclined to take the 4.1%. A major benefit of investment outside of your mortgage is the liquidity you have in investments vs money locked up in your house (provided you don't have a HELOC). However, if both of your jobs are secure, liquidity is probably less of a concern.

It's perfectly sensible to take a hybrid approach, allocating 50% to your mortgage and 50% to long term investments. If stocks sell off substantially, or your mortgage rate falls, you can always start getting more aggressive in the investment bucket.

Acadian

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Re: Pay Mortgage?
« Reply #7 on: December 09, 2012, 12:58:39 PM »
Hi Deano,

I am in a similar position (mid 30s, living in Ontario, in DB HOOPP plan). I've been struggling with the same question regarding investing vs paying down the mortgage.

I read an interesting article over at MyOwnAdvisor.ca ( http://www.myownadvisor.ca/2012/12/got-a-defined-benefit-pension-plan-consider-yourself-lucky-then-consider-it-a-big-bond/ ). He is looking at his DB plan as essentially a Bond in his overall investment strategy (guarenteed returns at low risk). If you look at it from that point of view, it would make sense that you would invest the rest of your $ as 100% stocks (ETF, index funds, etc to keep MER low).

Assuming you would be following MMM's advice and saving at least 50% of your take home pay, you could easily put some towards stocks and some towards extra mortgage payments.

Just a thought. Good luck!

P.S. I'd be interested in other point of views.