Personal Finance

Advice for Upcoming Mortgage Renewal

  • Last Updated:
  • Sep 29th, 2022 3:43 pm
[OP]
Sr. Member
Sep 1, 2014
573 posts
648 upvotes
Ontario

Advice for Upcoming Mortgage Renewal

Hi everyone,


Just looking for advice so I can get other viewpoints for an upcoming renewal. Want to make sure I'm looking at in through all perspectives.
- renewal coming up in 2 months
- home worth 550k
- remaining mortgage 140k
- bungalow in feeder town to kw
- myself, wife and 3 younger kids (thank God nice open finished basement)
- early 30s
- 170k gross a year... Stable pensions
- 150k in assets in investment portfolio.. About half of that cash...80 k of it in RRSP (damn!)
-mortgage now is about 1000 a month.

Wondering if we go variable?. In seeing some 'black friday' rates that are enticing but usually mean banks foresee BOC lowering rates again.

Do we double down our payments if we lock in and put 2k plus a month down? Or take advantage of cheap money and put that money in our TFSAs in into dividend stocks?

Any advice is appreciated!
Last edited by Stive85 on Nov 28th, 2020 1:22 pm, edited 1 time in total.
22 replies
Deal Addict
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Jan 15, 2017
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Stive85 wrote: Hi everyone,


Just looking for advice so I can get other viewpoints for an upcoming renewal. Want to make sure I'm looking at in through all perspectives.
- renewal coming up in 2 months
- home worth 550k
- remaining mortgage 140k
- bungalow in feeder town to kw
- myself, wife and 3 younger kids (thank God nice open finished basement)
- early 30s
- 170k gross a year... Stable pensions
- 150k in assets in investment portfolio.. About half of that cash...80 k of it in RRSP (damn!)
-mortgage now is about 1000 a month.

Wondering if we go variable?. In seeing some 'black friday' rates that are enticing but usually mean banks foresee BOC lowering rates again.

Do we double down our payments if we lock in and put 2k plus a month down? Or take advantage of cheap money and put that money in our TFSAs in into dividend stocks?

Any advice is appreciated!
You're asking the wrong question (variable vs fixed).

The question you should be asking is, "should we take the $70K and take a $70K mortgage and pay it off in 3 years?".

I would be leaning towards being mortgage-free in 3 years.
Member
Jul 17, 2018
301 posts
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How long have you been holding 50% cash in your portfolio? Have you been habitually having such a large percentage of your investment portfolio in cash? If so, what makes you think you'll "take advantage of cheap money" and invest in dividend stocks? If you have been habitually holding so much cash, it seems to me that in previous years you may have been better off increasing your mortgage payments?

With that said, I think based on the math, you should come out ahead if you "take advantage of the cheap money" and invest. Based on your income levels, $1,000 a month in mortgage payments really is taking advantage of the cheap money.

I personally struggle with the decision myself (paying down the mortgage vs investing). At the end of the day, I think you want to achieve a balance. Being mortgage free is great. It frees up a lot of cash each month. But at your income level and with $1,000 a month mortgage payments, you might as well continue what you have been doing; afterall, being mortgage free is very much psychological. It doesn't have to be all or nothing though. You could use some of your cash to pay down your mortgage and borrow less money on renewal. Or you could increase your monthly payments until you actually invested some/most of your cash (you can always go back to the default monthly mortgage payment).

Either way, you're in a great financial position.
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Jan 15, 2017
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GooseAkuma wrote: I personally struggle with the decision myself (paying down the mortgage vs investing). At the end of the day, I think you want to achieve a balance. Being mortgage free is great. It frees up a lot of cash each month. But at your income level and with $1,000 a month mortgage payments, you might as well continue what you have been doing; afterall, being mortgage free is very much psychological.
It's more than that. It gives you freedom and security, plus your cash flow will suddenly experience a huge uptick.

The stock market looks great, but all I see are companies with high stock prices and in many cases negative earnings. That's not a market I want to put my life savings into.
[OP]
Sr. Member
Sep 1, 2014
573 posts
648 upvotes
Ontario
GooseAkuma wrote: How long have you been holding 50% cash in your portfolio? Have you been habitually having such a large percentage of your investment portfolio in cash? If so, what makes you think you'll "take advantage of cheap money" and invest in dividend stocks? If you have been habitually holding so much cash, it seems to me that in previous years you may have been better off increasing your mortgage payments?
Been holding only large chunk of cash since about June. I exited a few high risk positions that had returned multiples in a short time. My thinking was that there was no way some stocks were going to be able to justify the insane valuations... Yet here we are..and many of those same stocks are up a other 50-100 percent! But I guess the saying is true.. Never regret making money!

I'm hesitant to enter a market with a Dow at 30k when just 6 months ago it was 16.... I'm not the most experienced, so I was waiting for the slow crawl up to dollar cost average into some index funds and a couple other ETFs I'd been watching. Again, the rebound was so sudden I was caught off guard. I still hold good core positions, but at this point can't justify the market level.

I agree it goes both ways with mortgage.. Money is "cheap" so i wonder if rate of return is much better in some safer securities over next few years? I do also agree that financial flexibility would be awesome mortgage free

Thanks for the input!
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Nov 14, 2003
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Stive85 wrote: Wondering if we go variable?. In seeing some 'black friday' rates that are enticing but usually mean banks foresee BOC lowering rates again.
I don't think fixed versus variable mortgages matters at the moment because the rates are almost the same 1.35% for variable five year versus 1.54% for fixed five year mortgage (Meridien credit union). There is not a lot lower the rates can go plus your mortgage is fairly small that the savings or loss may be negligible if rates move. I don't think rates will be going up anytime soon so maybe variable is the way to go.
Deal Addict
Sep 27, 2005
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Cibc has a 4 year fixed 1.49% black Friday promo plus up to $3k cashback tiered on mortgage size.

Has to be new mortgage to cibc, rentals add 0.15% or 30 year amortization add 0.10%. Application must be on by dec 24th and close within 120 days of application date.

Both high ratio and conventional from what I was told.
Member
Jul 17, 2018
301 posts
158 upvotes
Stive85 wrote: Been holding only large chunk of cash since about June. I exited a few high risk positions that had returned multiples in a short time. My thinking was that there was no way some stocks were going to be able to justify the insane valuations... Yet here we are..and many of those same stocks are up a other 50-100 percent! But I guess the saying is true.. Never regret making money!

I'm hesitant to enter a market with a Dow at 30k when just 6 months ago it was 16.... I'm not the most experienced, so I was waiting for the slow crawl up to dollar cost average into some index funds and a couple other ETFs I'd been watching. Again, the rebound was so sudden I was caught off guard. I still hold good core positions, but at this point can't justify the market level.

I agree it goes both ways with mortgage.. Money is "cheap" so i wonder if rate of return is much better in some safer securities over next few years? I do also agree that financial flexibility would be awesome mortgage free

Thanks for the input!
I get where you're coming from. I have been holding a greater amount of cash in my investment accounts and have been hesitant to deploy it. So having greater amounts of cash to deploy doesn't do anything for me currently. So my strategy really is to make extra payments on my mortgage here and there (I'm allowed to make prepayments at any time rather than once a year). No need to take an all or nothing approach. So I guess if I was you, I would do what what you're doing and diverting the bulk of my funds towards my investments but putting more money into my mortgage at the same time.
Member
Jul 17, 2018
301 posts
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taxrage wrote: It's more than that. It gives you freedom and security, plus your cash flow will suddenly experience a huge uptick.

The stock market looks great, but all I see are companies with high stock prices and in many cases negative earnings. That's not a market I want to put my life savings into.
OP is in his early 30s, makes $170K gross, and his mortgage payment is about $1K a month (with $140K left). That's not much of an "uptick" in cash flow and he's in a great financial position. He's also looking into putting his money into dividend stocks (presumably safer stocks) so it's not like he's gambling his life savings.

I think it really is simple. Either way OP will do fine. It's just a matter of optimization.
[OP]
Sr. Member
Sep 1, 2014
573 posts
648 upvotes
Ontario
I suppose I'm curious as to the benefits vs negatives of going variable?


Reading between the lines of the lenders... Interest rates will be down for 4ish years... And they anticipate them possibly going lower... Do I lock in variable... Pay it off relatively more aggressively (say double up my payments) and invest the rest hoping for a better than 1.5 percent return?

Good problem to have for sure. But just want to go about it the most prudent way.

Thanks for all your help!
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Jan 15, 2017
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GooseAkuma wrote: OP is in his early 30s, makes $170K gross, and his mortgage payment is about $1K a month (with $140K left). That's not much of an "uptick" in cash flow and he's in a great financial position. He's also looking into putting his money into dividend stocks (presumably safer stocks) so it's not like he's gambling his life savings.

I think it really is simple. Either way OP will do fine. It's just a matter of optimization.
They need both spouses in the workforce, though, to pay bills for their family of 5. There is always the risk that one spouse may have to leave the work force due to illness/injury. By having the house paid off in 3 years that risk is mostly eliminated.
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Nov 13, 2013
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taxrage wrote: They need both spouses in the workforce, though, to pay bills for their family of 5. There is always the risk that one spouse may have to leave the work force due to illness/injury. By having the house paid off in 3 years that risk is mostly eliminated.
Exactly! Also losing your job, Covid aside, is highly correlated to stock market losses, even "safe" dividend stocks. He's probably fine and probably at least one is public sector but still. Sleeping well is also under appreciated.
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fogetmylogin wrote: Exactly! Also losing your job, Covid aside, is highly correlated to stock market losses, even "safe" dividend stocks. He's probably fine and probably at least one is public sector but still. Sleeping well is also under appreciated.
I like the advice John Goodman gives to Mark Wahlberg in The Gambler (pay off your house, buy a Corolla for cash).

That could be bad advice during certain periods, such as if you could get in early on a stock like Apple or Amazon, but I think it might be good advice in this environment.
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Aug 14, 2020
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Stive85 wrote: I suppose I'm curious as to the benefits vs negatives of going variable?


Reading between the lines of the lenders... Interest rates will be down for 4ish years... And they anticipate them possibly going lower... Do I lock in variable... Pay it off relatively more aggressively (say double up my payments) and invest the rest hoping for a better than 1.5 percent return?

Good problem to have for sure. But just want to go about it the most prudent way.

Thanks for all your help!
The fixed vs. variable question is not just about having a crystal ball. Fixed might be the choice if you absolutely can't pay any more. Otherwise Variables are usually cheaper in the long run.

The other, less talked about advantage to a variable mortgage is flexibility. If you ever had to break your mortgage, the penalty is usually 3 months interest for variable. For a fixed mortgage it is usually the greater of 3 months interest or Interest Rate Differential (IRD). IRD calculations vary widely between lenders and can be very large. Most lenders have calculators for Pre Payment Penalties on their website - there are different methods of calculation, so you may need to actually call the bank to find your pay out.

For you, finding a lender or program with maximum flexibility might matter more than a fraction of a percentage in rate, but if you want great rates it is an amazing time.
.
[OP]
Sr. Member
Sep 1, 2014
573 posts
648 upvotes
Ontario
fogetmylogin wrote: Exactly! Also losing your job, Covid aside, is highly correlated to stock market losses, even "safe" dividend stocks. He's probably fine and probably at least one is public sector but still. Sleeping well is also under appreciated.
Both public sector.

Agree with the sleeping well! Comfort is a luxury in life!
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I should have mentioned in my fixed/variable post: You could also consider a HELOC. The most flexible option: pay off as fast as you want, use it as an emergency fund instead of cash, use it for investing or renos to add value to your home.
.
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Feb 4, 2010
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How about a HELOC instead of a mortgage renewal?
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Jul 17, 2018
301 posts
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taxrage wrote: They need both spouses in the workforce, though, to pay bills for their family of 5. There is always the risk that one spouse may have to leave the work force due to illness/injury. By having the house paid off in 3 years that risk is mostly eliminated.
fogetmylogin wrote: Exactly! Also losing your job, Covid aside, is highly correlated to stock market losses, even "safe" dividend stocks. He's probably fine and probably at least one is public sector but still. Sleeping well is also under appreciated.
That's personal and psychological though. You can't plan for everything. If I feel that I have job security I am not losing sleep over the possibility of job loss. If I have doubts I'm setting up contingencies.

OP's mortgage payment is about $1,000 a month. Plus property taxes and other costs that's VERY affordable if it is big enough to house 2 adults and 3 kids. OP would have bigger problems if he's losing sleep over paying $1000 a month in mortgage payments.

Like I said, I'm not advocating an all or nothing approach. If I was OP, I would pay down the mortgage more. It does come down to risk assessment and balance. If job security and an associated decrease in income is a concern, I think I would sleep better having a larger emergency fund than having a paid for home. If I have a l comfortable emergency fund and I'm sitting on large percentage of cash in my portfolio I myself would be making larger extra payments on my mortgage.

taxrage wrote: I like the advice John Goodman gives to Mark Wahlberg in The Gambler (pay off your house, buy a Corolla for cash).

That could be bad advice during certain periods, such as if you could get in early on a stock like Apple or Amazon, but I think it might be good advice in this environment.
I like that advice.
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Apr 5, 2017
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Stive85 wrote: Hi everyone,


Just looking for advice so I can get other viewpoints for an upcoming renewal. Want to make sure I'm looking at in through all perspectives.
- renewal coming up in 2 months
- home worth 550k
- remaining mortgage 140k
- bungalow in feeder town to kw
- myself, wife and 3 younger kids (thank God nice open finished basement)
- early 30s
- 170k gross a year... Stable pensions
- 150k in assets in investment portfolio.. About half of that cash...80 k of it in RRSP (damn!)
-mortgage now is about 1000 a month.

Wondering if we go variable?. In seeing some 'black friday' rates that are enticing but usually mean banks foresee BOC lowering rates again.

Do we double down our payments if we lock in and put 2k plus a month down? Or take advantage of cheap money and put that money in our TFSAs in into dividend stocks?

Any advice is appreciated!
Looks like you are very well financially disciplined ! Out of curiosity, how did you manage to lower your mortgage to this amount at this age ? When did you buy your house and you had a huge down payment ?

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