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Residential Market Commentary - Mortgage-free or diversity?

Canadians put a high priority on paying off their mortgage debt – sometimes maybe a little too high.

Paying off debt is always a good move. Wanting to be mortgage free is a laudable goal. Making it your only goal may not be as sound.

Traditionally paying off your mortgage as quickly as possible has been seen as one of the best routes to financial success. Interest rates used to be higher. Some will remember that nasty period in the ‘80s and ‘90s when they were in double digits. Even the 5% and 6% rates in place just before the Great Recession make today’s rates seem cheap. So it can make more sense to take your focus off of your home and mortgage and view them as part of a more diversified investment strategy.

Over the past 10 years stock markets have tended to deliver rates of return that are markedly higher than mortgage interest rates. By diverting some money away from your mortgage you could invest through RSPs or TFSAs. It has been shown that people who start investing when they are young end up wealthier later in life.

Of course markets do fluctuate and some people prefer the stability of the “guaranteed return” that comes with paying down a mortgage. It is a form of enforced saving.

There is also a sense of security that comes with mortgage free home ownership in the case of job loss or a sudden drop in income. There is also protection in diversification. Because you have expenses that go beyond your mortgage, having a collection of smaller assets can be useful. If money gets tight you could sell a lesser investment in order to pay other bills.

While it is never a bad plan to pay down your mortgage faster, it is always a good plan to diversify and spread around your assets and your risks. As the old expression says, “Don’t put all your eggs in one basket.”