Investing

Paying off property in 6 years

  • Last Updated:
  • Nov 8th, 2017 10:21 am
[OP]
Newbie
Oct 21, 2017
48 posts
4 upvotes

Paying off property in 6 years

I have a property that is rented out but I currently don't have a home.

If I am able to pay off the property in 6 years, do you recommend against this or for it and what's the reasoning?

Thanks
9 replies
Deal Addict
User avatar
Jul 22, 2004
1691 posts
35 upvotes
ETOBICOKE
curiousgeorge1000 wrote:
Nov 7th, 2017 3:53 am
I have a property that is rented out but I currently don't have a home.

If I am able to pay off the property in 6 years, do you recommend against this or for it and what's the reasoning?

Thanks
How is anyone supposed to give you a solid answer if you give zero information? :facepalm:
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Sr. Member
User avatar
Sep 19, 2013
953 posts
275 upvotes
Winnipeg
Blazin_Sunfire wrote:
Nov 7th, 2017 9:02 am
How is anyone supposed to give you a solid answer if you give zero information? :facepalm:
agree with above, for starters - what do you plan to do with the money that would otherwise have gone into prepayments? What is your expected rate or return and risk?
Deal Addict
User avatar
Sep 4, 2005
2617 posts
448 upvotes
Toronto
So many newbie accounts posting these generic questions. At least this one isn't stirring the pot.

OP, where are you living? What are you goals for the next 6 years? How much do you make? How much do you ow on the property?
Deal Fanatic
Mar 24, 2008
5170 posts
1206 upvotes
Toronto
I believe the correct answer is that yes, you should pay it off in 6 years.

I don't need a reason to tell you that it makes sense to pay off your debts. Do you have a specific question?
Illegitimi non carborundum
[OP]
Newbie
Oct 21, 2017
48 posts
4 upvotes
Sorry for not providing more info.

I'm considering the following options:

[1] $100,000 less for down payment at 3.24% mortgage rate
-use the $100k and invest in the stock market with return of 4% to pay off mortgage
-effective mortgage rate after tax deduction is 2.268% on rental property
-effective stock market return rate for capital gains after tax deduction is 3.4%
-effective stock market return rate for dividends after tax deduction is 3.6%
-If dividends does 4% avg, I am able to save $6660 in 5 years
-If capital gains does 4% avg, I am able to save $5660 in 5 years

[2] $100,000 additional for down payment at 3.00% mortgage rate and pay off mortgage in 6-8 years

If my plan is to acquire another property for rental, does it still make sense to pay off mortgage early in 6-8yrs?

Thanks
Deal Fanatic
Mar 24, 2008
5170 posts
1206 upvotes
Toronto
curiousgeorge1000 wrote:
Nov 7th, 2017 11:29 pm
Sorry for not providing more info.

I'm considering the following options:

[1] $100,000 less for down payment at 3.24% mortgage rate
-use the $100k and invest in the stock market with return of 4% to pay off mortgage
-effective mortgage rate after tax deduction is 2.268% on rental property
-effective stock market return rate for capital gains after tax deduction is 3.4%
-effective stock market return rate for dividends after tax deduction is 3.6%
-If dividends does 4% avg, I am able to save $6660 in 5 years
-If capital gains does 4% avg, I am able to save $5660 in 5 years

[2] $100,000 additional for down payment at 3.00% mortgage rate and pay off mortgage in 6-8 years

If my plan is to acquire another property for rental, does it still make sense to pay off mortgage early in 6-8yrs?

Thanks
Paying off mortgage is a guaranteed return vs investing is stocks. Looking at your numbers, there is very little upside to taking the risk in the stock market. So yes, it still makes sense to pay off your mortgage in 6-8 years especially if you want to buy another property down the road.
Illegitimi non carborundum
Member
Dec 2, 2014
390 posts
121 upvotes
London, ON
curiousgeorge1000 wrote:
Nov 7th, 2017 11:29 pm
Sorry for not providing more info.

I'm considering the following options:

[1] $100,000 less for down payment at 3.24% mortgage rate
-use the $100k and invest in the stock market with return of 4% to pay off mortgage
-effective mortgage rate after tax deduction is 2.268% on rental property
-effective stock market return rate for capital gains after tax deduction is 3.4%
-effective stock market return rate for dividends after tax deduction is 3.6%
-If dividends does 4% avg, I am able to save $6660 in 5 years
-If capital gains does 4% avg, I am able to save $5660 in 5 years

[2] $100,000 additional for down payment at 3.00% mortgage rate and pay off mortgage in 6-8 years

If my plan is to acquire another property for rental, does it still make sense to pay off mortgage early in 6-8yrs?

Thanks
Yolo on Square
Sr. Member
User avatar
Sep 19, 2013
953 posts
275 upvotes
Winnipeg
curiousgeorge1000 wrote:
Nov 7th, 2017 11:29 pm
Sorry for not providing more info.

I'm considering the following options:

[1] $100,000 less for down payment at 3.24% mortgage rate
-use the $100k and invest in the stock market with return of 4% to pay off mortgage
-effective mortgage rate after tax deduction is 2.268% on rental property
-effective stock market return rate for capital gains after tax deduction is 3.4%
-effective stock market return rate for dividends after tax deduction is 3.6%
-If dividends does 4% avg, I am able to save $6660 in 5 years
-If capital gains does 4% avg, I am able to save $5660 in 5 years

[2] $100,000 additional for down payment at 3.00% mortgage rate and pay off mortgage in 6-8 years

If my plan is to acquire another property for rental, does it still make sense to pay off mortgage early in 6-8yrs?

Thanks
If you have a long horizon, I would say 10+ yrs and have self-discipline not to deviate from your goal, then go the stock route. You also have the option of doing a Smith Manoeuvre (there is a thread on this in Personal Finance).

But by the looks of it, you plan is to be in real estate and acquire another property. In that case, I would say pay off your debt. Even here you can do a Smith Manoeuvre later to pay for the expenses of your 2nd property and use your rental revenue to pay down your mortgage for 2nd property/ investments/ personal expenses/ luxuries.
Deal Addict
User avatar
Dec 14, 2010
4307 posts
3260 upvotes
curiousgeorge1000 wrote:
Nov 7th, 2017 11:29 pm
Sorry for not providing more info.

I'm considering the following options:

[1] $100,000 less for down payment at 3.24% mortgage rate
-use the $100k and invest in the stock market with return of 4% to pay off mortgage
-effective mortgage rate after tax deduction is 2.268% on rental property
-effective stock market return rate for capital gains after tax deduction is 3.4%
-effective stock market return rate for dividends after tax deduction is 3.6%
-If dividends does 4% avg, I am able to save $6660 in 5 years
-If capital gains does 4% avg, I am able to save $5660 in 5 years

[2] $100,000 additional for down payment at 3.00% mortgage rate and pay off mortgage in 6-8 years

If my plan is to acquire another property for rental, does it still make sense to pay off mortgage early in 6-8yrs?

Thanks
Ultimately, it's your decision. To choose the approach of investing instead of paying off the mortgage, you need to have the knowledge and strategy in place to do better than the 3% mortgage rate. Paying off your mortgage is safer, but it will yield a lower return. Investing in stocks carries additional risks, hence the higher return potential. Dividends from mature, high quality companies are reliable and can provide a higher rate of return. If you invest with valuation in mind, you build a margin of safety that will maximize returns on a diversified portfolio. But you need a long term horizon of 5 or 7 years, since stock price can be disconnected from fundamentais in the short term.

Alternatively, and only if you are comfortable with leveraging, is to do both : Implement Smith Maneuver to invest in dividends stocks and pay off your mortgage quicker at the same time.

Ultimately, your comfort level and knowledge with investing should decide if it's worth it versus the guaranteed return is paying off the mortgage faster.


Rod
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