Quote:
Originally Posted by DiracSpike
This is well reasoned but ultimately the summation is you're taking on more risk by doing this. You're counting on capturing the differential between investing and just straight math of reducing a mortgage amount. It *might* pay off, but it also might not. And for a lot of people if it doesn't they're in a world of hurt. I've yet to hear from anyone I've met that regretted paying down their mortgage. Could they have theoretically come out ahead investing that money instead? Maybe, in a lot of cases, but the peace of mind of securing your family's home base for decades, being impervious to interest rate shenanigans, and having a bunch of cash that was being shovelled into a mortgage available ahead of schedule outweighs that. For the vast majority of people that are not sophisticated investors I tend to believe it's the best move.
Or you can hope your investments pay off while sweating out every time an interest rate announcement comes out and take the risk you have to move your family out of a home everyone presumably likes and is comfortable in because you thought you could beat the market. Up to the individual I guess.
|
Well that's why things like GICs or bonds or potentially high-interest savings accounts make sense. If you have the mortgage come up in three years, you can buy bonds that mature ahead of that and earn a better rate of return than just paying the mortgage. When the bond matures, you plunk it on the mortgage at renewal and you have paid more down on the mortgage than you would've today and with low risk (depending on the bonds you buy...or really have someone who knows what they're doing buy for you).
And...worst case scenario, you can sell those bonds ahead (again, assuming that you aren't buying a riskier high-yield bond).
And of course, with something like a GIC, you end up with ~5% for three years, and it's virtually guaranteed.