Pay Off Your Mortgage -vs- Investing In Real Estate
The debate over whether paying down the mortgage on a primary residence is the wisest financial move right now or not is heating up and catching more media attention.
With rumors of a cooling off in the housing market in some areas of Canada some may think paying down their home loans fast is the most prudent fiscal move that they can make.
There is certainly some wisdom in this strategy. It is always smart to have some wiggle room and equity cushion in your home just in case you need to sell during a down period. Plus the end goal for most is to have their homes paid off, free and clear eventually right?
However that doesn’t mean panicking and making poor financial moves and investment decisions that will hurt you in the long run. You can’t get that time back ever.
If you have a reasonable equity position in your home or have reasonable job security or never plan to move, or at least don’t anticipate having to move even in the worst case scenario, then make the best use of your money by putting it to work.
Even if there is a correction happening elsewhere in Canada there is little question that Alberta real estate is only headed up. Not only is it remaining strong, Alberta property has been posting some of the best investment returns in the world.
Clearly the returns on commercial real estate in Alberta and in Edmonton in particular far exceed the amount of interest you’d save on paying down your mortgage today. Most Canadians are enjoying the lowest interest rates anywhere, and seen, for a long time and they are only likely to go up. That means those that prematurely pay down their home loans and have to re-mortgage to tap that equity later will likely be paying far, far more for the privilege.
Then factor in the time value of money. Calculate the value of compounded returns on the yields being brought in from commercial real estate investments now versus equity in a home which may just balance out inflation at the time you plan to sell later.
For the doubters and those Canadians really convinced that paying off their homes and being debt free earlier is a must, there is another option.
Why not have your cake and eat it to? You can have the best of both worlds and invest in prime commercial real estate in Edmonton, take part of your extra cash flow and make extra principal payments on your home and have money left over to spare.