*Updated* Ongoing Bank of Canada Benchmark Rate Announcements

[The Fonz]

Today was a 50bps drop to 3.25%

[Sylvanfan]

The jobs data and unemployment numbers last week were a mixed bag. With November inflation being down it did look like it was only going to be a 25bp cut. But the Trump tariff threats and high unemployment seem to be working against that. So it's another 50bp cut. I used to think 2.75 next summer would be the floor...but who knows maybe it will be 2.25.

[Engine09]

I just signed a variable 5 year mortgage renewal last week for prime - 0.95%. Feeling ok about that, but it's still going to be annoying to be watching all the time.

[pseudoreality]

I was a little surprised with the 50bp cut considering we are exactly at the inflation target. Part of me feels like we need runway for when Trump-economics crash and burn.

[PaperBagger'14]

Crowdsourcing some info here to get the general feel but if you had a significant amount of money invested (easily liquidated) which was intended to pay down your mortgage, at what interest rate for mortgage vs rate of return on your investments would you put that money down on your mortgage?

Do people look at it as simply as my mortgage is 4 percent and my investments are 6% typically therefore I’ll hold the investments? What other considerations would you make?

[Table 5]

I think it's often a question of risk management. Higher investment returns are nice, but you always have to ask yourself, what are the chances of that expected 6% investment return turning into -6% (or maybe even -26%). And if that happens, am I equipped to deal with that, financially and emotionally? If not, maybe you're better off just paying off the mortgage now.

Personally, I can still get a much better rate sitting in a virtually risk-free money market fund (around 5%), compared to my 2.1% mortgage that I have for about another year and a half. So that's where I'm at.. for now. If that money had to be in general stocks to beat the mortgage rate, I think I'd be more aggressive in paying it down.

[Izzle]

Originally Posted by PaperBagger'14

Crowdsourcing some info here to get the general feel but if you had a significant amount of money invested (easily liquidated) which was intended to pay down your mortgage, at what interest rate for mortgage vs rate of return on your investments would you put that money down on your mortgage?

Do people look at it as simply as my mortgage is 4 percent and my investments are 6% typically therefore I’ll hold the investments? What other considerations would you make?

It depends.

Here's a resource that will help
https://pwlcapital.com/invest-or-pay-off-your-mortgage/

[blankall]

Originally Posted by PaperBagger'14

Crowdsourcing some info here to get the general feel but if you had a significant amount of money invested (easily liquidated) which was intended to pay down your mortgage, at what interest rate for mortgage vs rate of return on your investments would you put that money down on your mortgage?

Do people look at it as simply as my mortgage is 4 percent and my investments are 6% typically therefore I’ll hold the investments? What other considerations would you make?

When my mortgage rates were 2% or lower, 100% more into investment. With mortgage rates likely to increase withe my next renewal, I've started paying down the mortgage more. Not that much though, I also expect the Dow Jones to increase a lot, as the built in inflation will finally catch up to other investments.

[Fuzz]

Originally Posted by Table 5

I think it's often a question of risk management. Higher investment returns are nice, but you always have to ask yourself, what are the chances of that expected 6% investment return turning into -6% (or maybe even -26%). And if that happens, am I equipped to deal with that, financially and emotionally? If not, maybe you're better off just paying off the mortgage now.

Personally, I can still get a much better rate sitting in a virtually risk-free money market fund (around 5%), compared to my 2.1% mortgage that I have for about another year and a half. So that's where I'm at.. for now. If that money had to be in general stocks to beat the mortgage rate, I think I'd be more aggressive in paying it down.

Speaking of money market funds, those percentages are probably dropping(I need to look). I assume at this point if you have Canadian ones it might make sense to move the money to US based funds given the higher rates? I've got a couple of each, but have been considering moving it all to US.

[DoubleF]

Originally Posted by Engine09

I just signed a variable 5 year mortgage renewal last week for prime - 0.95%. Feeling ok about that, but it's still going to be annoying to be watching all the time.

You likely can convert to fixed rate mortgage sometime next year without penalty or negligible fee when the fixed rates are a lot lower.

Originally Posted by PaperBagger'14

Crowdsourcing some info here to get the general feel but if you had a significant amount of money invested (easily liquidated) which was intended to pay down your mortgage, at what interest rate for mortgage vs rate of return on your investments would you put that money down on your mortgage?

Do people look at it as simply as my mortgage is 4 percent and my investments are 6% typically therefore I’ll hold the investments? What other considerations would you make?

It depends on your situation and your appetite. Do you need cashflow and a bird in the hand? Or are you willing to take risk to wildly exceed the 4% mortgage rate?

If you're only getting 6% rate of return year over year, I'd say mortgage... or change what you're investing in. If I were to invest in a bank stock (per se), I'd expect more than 6% average yearly rate of return for increased value plus dividends after 3 years for someone like CIBC, TD, RBC etc.

Don't forget that once you pay off the mortgage, you won't have any further withdrawals at regular intervals (principal and interest). Topping your rainy day investments back up should be a piece of cake. Most people forget to factor that into their calculations.

If you have enough to totally pay off the mortgage, I'd say to consider it. But if only enough to dent it, then I'd say consider review you investing strategy and investing longer.

Good luck. I'm hoping to be aggressive as possible and my hopes is that being mortgage free will be a dream that's only around 8 years out.

[powderjunkie]

Originally Posted by PaperBagger'14

Crowdsourcing some info here to get the general feel but if you had a significant amount of money invested (easily liquidated) which was intended to pay down your mortgage, at what interest rate for mortgage vs rate of return on your investments would you put that money down on your mortgage?

Do people look at it as simply as my mortgage is 4 percent and my investments are 6% typically therefore I’ll hold the investments? What other considerations would you make?

Look at the tax implications for when you sell, but also remember that taxes may offset any greater returns from investing. Of course there is benefit to having an extra healthy emergency fund, especially if your employment is at all precarious. Best option might be to leave the investments but direct more cash flow to the mortgage

[PaperBagger'14]

Originally Posted by DoubleF

You likely can convert to fixed rate mortgage sometime next year without penalty or negligible fee when the fixed rates are a lot lower.



It depends on your situation and your appetite. Do you need cashflow and a bird in the hand? Or are you willing to take risk to wildly exceed the 4% mortgage rate?

If you're only getting 6% rate of return year over year, I'd say mortgage... or change what you're investing in. If I were to invest in a bank stock (per se), I'd expect more than 6% average yearly rate of return for increased value plus dividends after 3 years for someone like CIBC, TD, RBC etc.

Don't forget that once you pay off the mortgage, you won't have any further withdrawals at regular intervals (principal and interest). Topping your rainy day investments back up should be a piece of cake. Most people forget to factor that into their calculations.

If you have enough to totally pay off the mortgage, I'd say to consider it. But if only enough to dent it, then I'd say consider review you investing strategy and investing longer.

Good luck. I'm hoping to be aggressive as possible and my hopes is that being mortgage free will be a dream that's only around 8 years out.

I picked 6% just to be on the low end, wanted to use some conservative values, realistically it will be better than that if things go well.

And to powder, there aren’t any tax implications for selling as I’ve been using my TFSA as a conduit for investing with intent to pay off the mortgage faster.

[Table 5]

Originally Posted by Fuzz

Speaking of money market funds, those percentages are probably dropping(I need to look). I assume at this point if you have Canadian ones it might make sense to move the money to US based funds given the higher rates? I've got a couple of each, but have been considering moving it all to US.

I've been mostly in US ones from the start (SGOV which is 0-3 month treasuries) and it's still hovering above 5%. I'm sure that will decrease soon, but until then I'm gonna let it ride.

CAD has been such a turd year, but then again so has everything besides the USD. At some point that's gotta reverse a bit...right??

[Iggy_12]

Possibly a dumb question, but how do rate cuts typically impact fixed mortgage rates. like what does a .25 or .50 do to the rate if anything at all? if mortgage rates are 4% now what would you expect them to be after this cut?

[DoubleF]

Originally Posted by PaperBagger'14

I picked 6% just to be on the low end, wanted to use some conservative values, realistically it will be better than that if things go well.

And to powder, there aren’t any tax implications for selling as I’ve been using my TFSA as a conduit for investing with intent to pay off the mortgage faster.

I'd personally aim closer to 9-11% ROR (dividends + gains) before leaning towards investing over mortgage paydown. I know others think differently, but to me, there's value in unlocking my cashflow from mortgage payments years earlier.

I put some cash aside in bank stocks for a lump sum payment this year. I was aiming for around 5-6% after around 6 months to bump up the paydown by a few K. I was kinda surprised to end up with about 20-30% gains after 6 months. I kinda wanted to let it ride TBH, but I decided to stick to my original plan instead. Keep in mind, I have double digit percentage losses in some of my other investments (albeit small holdings), so lump sums in my mortgage keeps me from having the cash to gamble and lose a few thousand dollars in stupid things like that.

Originally Posted by Iggy_12

Possibly a dumb question, but how do rate cuts typically impact fixed mortgage rates. like what does a .25 or .50 do to the rate if anything at all? if mortgage rates are 4% now what would you expect them to be after this cut?

It doesn't affect an existing fixed rate mortgage. But it might affect a new fixed rate mortgage/renewal if that is supposed to happen soon.

[PaperBagger'14]

Originally Posted by DoubleF

I'd personally aim closer to 9-11% ROR (dividends + gains) before leaning towards investing over mortgage paydown. I know others think differently, but to me, there's value in unlocking my cashflow from mortgage payments years earlier.

I put some cash aside in bank stocks for a lump sum payment this year. I was aiming for around 5-6% after around 6 months to bump up the paydown by a few K. I was kinda surprised to end up with about 20-30% gains after 6 months. I kinda wanted to let it ride TBH, but I decided to stick to my original plan instead. Keep in mind, I have double digit percentage losses in some of my other investments (albeit small holdings), so lump sums in my mortgage keeps me from having the cash to gamble and lose a few thousand dollars in stupid things like that.



It doesn't affect an existing fixed rate mortgage. But it might affect a new fixed rate mortgage/renewal if that is supposed to happen soon.

Im fairly heavy in dividend based ETFs which helps with diversification. These ETFs generally return ~4% yield so to get a 6% increase in share value wouldn’t be unreasonable to hit a 10% ROR if things go well.

But the points I’m seeing from everyone about opening up cash flow are tempting.

[blankall]

Originally Posted by PaperBagger'14

Im fairly heavy in dividend based ETFs which helps with diversification. These ETFs generally return ~4% yield so to get a 6% increase in share value wouldn’t be unreasonable to hit a 10% ROR if things go well.

But the points I’m seeing from everyone about opening up cash flow are tempting.

Cash flow is good. But if you keep the investments, when your mortgage is eventually paid off, you get the cash flow, plus the investment, which could be in the hundreds of thousands.

You could also hedge your bets, and keep the investment to the point the dividends pay for the mortgage, and use the dividends to pay the remaining mortgage.

[Sylvanfan]

I'm stupidly conservative so I would likely default to paying off my need for a place to live.

It depends a bit as to how long is left on your amortization. Since a mortgage kicks you in the ball's up front with interest getting paid first. Getting the principal amount down to shorten your amortization to period has a lot of value. If you're down to10 years less and a lump sum after 5 to cut it in half..invest and you'll build more overall value. If you have 20 years left, I'd lean towards paying down the mortgage.

[DoubleF]

Originally Posted by blankall

Cash flow is good. But if you keep the investments, when your mortgage is eventually paid off, you get the cash flow, plus the investment, which could be in the hundreds of thousands.

You could also hedge your bets, and keep the investment to the point the dividends pay for the mortgage, and use the dividends to pay the remaining mortgage.

A hundred thousand dollar lump sum could save you around 4-6 years of amortization. At 4%, that's around $16-24K interest (uncompounded for simplicity) over that 4-6 years. The thing is, I could marginally beat the mortgage rate using the $100K up front, but I need to factor in having a mortgage for 5-6 years less.

If it's $100K, 6% average ROR, then I have an extra $8-12K ($2K per year x 4-6 years), which is less than the interest savings on a shorter amortization.

$100K with average rate of return of 10%, then I have $40-60K after 4-6 years, or $24-36K to pay down the mortgage, so slightly ahead of the interest savings for 4-6 paying off early. But keep in mind that rate of returns over 10% weren't really normal until the pandemic. getting 10% rate of return is a weird new normal. I assume it's here to stay, but I honestly don't know. Otherwise, I'd remortgage and dump it into the stock market and be mortgage free even faster (but that likely starts its own vicious cycle).

Could I throw a ton into Southbow for an 8% dividend yield and reasonably expect enough gain in stock price to be above 10% rate of return over a period of time like 3-5 years? Yeah, and it's a simple plus relatively low risk (but not risk free) and effortless concept. Which is why I agonized on a decision to let my money ride or cash out and lump sum pay down the mortgage. Paying down the mortgage gives up opportunity cost, but is effortless. Investing allows you to keep opportunity cost, but slightly more effort is required to keep it up.

The simplified cashflow flexibility of mortgage free earlier vs juggling cash flow movements into multiple paths to accumulate wealth on paper would immediately eliminate some stresses. I want that. That has value to me, that's a path I'm pursuing. The world is so complex, one less thing would be great.


I'm also comparing this to what I've done investments wise over the last 10-15 years. I think I could make good bets and likely could beat 10% relatively easily. But I don't know how much longer I really want to have to put in effort to manage so many things simultaneously. Yeah, I know that some people might think it's kinda dumb, but oh well.

[chemgear]

Originally Posted by PaperBagger'14

Crowdsourcing some info here to get the general feel but if you had a significant amount of money invested (easily liquidated) which was intended to pay down your mortgage, at what interest rate for mortgage vs rate of return on your investments would you put that money down on your mortgage?

Do people look at it as simply as my mortgage is 4 percent and my investments are 6% typically therefore I’ll hold the investments? What other considerations would you make?

If you're like 45+ I can totally see the desire to wipe out a mortgage just for the peace of mind. And if you are already maxing out the RRSP and TFSA (and have a nice 4 million set aside) already, even more so.