not2old

without being product or instrument specific on an investment category (savings accounts, term deposits/CD's, GIC's, stocks, split shares, ETF's, CEF'S, unit trust/trust units, preferred shares, convertible bonds), isn't always better to pay yourself first and to minimize any mortgage that one may have, which over the course of 25 years you likely have paid out double or more of what the original mortgage amount was.

All that hassle investing with the up's & downs of the market in an RRSP or TFSA or non-registered products.

There are folks that will hold their own mortgage on their residence property within their own RRSP

Google is your friend on this, one I found

Loan yourself a mortgage

http://business.financialpost.com/pe...th-the-trouble

Even with a low rate mortgage interest rate where the individual is on a flex rate to an interest rate only.

If you have money in an RRSP why not convert that to your own mortgage.

OK, now we have folks that have sizeable equity in their property, some may covert that to a HELOC at a rate of approx 3% as the going rate & if they can invest that at 10%, wow, what a winner, now have 7% free money

So much more on this, just the mind set of folks the way they try to save for retirement



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Shakyuk

I can see the arguments for taking debt to invest or 'gearing' and a lot of people make a lot of money doing that, but I personally am extremely against debt and believe in only investing what I can afford to lose.

I agree with you about paying down a mortgage, there's a lot to be said for paying down debt; there's a risk with investing but very little risk paying down debt so long as you keep some cash savings.

I think it's down to diversification, overpay a bit on the mortgage, invest some, keep some cash as a buffer.

This way in all variables you have some win and some lose.
Property prices go down and shares up, you made on shares and reduced your risk exposure by overpaying on your mortgage.
Property goes up and shares down; you lost on shares but increased your equity in an appreciating asset.
Lost you job; you have cash in the bank, investments you can liquidate and a reduced debt burden because you overpaid on your mortgage.

BristolUK

I trust nobody has United Airlines in their portfolio.

morpeth

I cant see any reason why if one is making 5% of more to pay down a mortgage at under 3%, except (a) for peace of mind (b) not enough cash reserve in case one loses job and cant afford mortgage payments for a while (c) if the investments making 5% or more are not fairly secure against losing principal.

The argument of what one might pay in interest on a mortgage over 10 or 20 years I have never understood- it has to be compared to the opportunity cost of not earning more interest on other investments.

Plus if the mortgage has a fixed interest rates, over time the "real cost" goes down while investment in higher interest.dividend earning investments generally can beat the rate of inflation if care is paid.

I guess a lot depends on type of investments, stocks are notoriously hard even for professional managers to predict. there are some fairly solid stocks with dividends being paid at 4.5 to 6.5% these days, and if averaged over time with diversification some stocks whose dividends grow over time.

Perhaps just moderation, pay a bit extra on mortgage, periodically consider refinancing if rates are low or when it would reduce the monthly payment, and be conservative in earning more than the interest cost on the mortgage.

But forget the argument about what you will pay in the mortgage over 20 years, as if you earn 5% but pay 2.98% on mortgage., over 20 year simple math is you come out ahead not paying off the mortgage.

not2old

Why not

https://finance.yahoo.com/quote/UAL?ltr=1

April 2016 last year UAL was $57. In July 2016 it dropped to the $40 range, then recovered

Yesterday it bottomed at $68.37, finishing the day at $70.71

How would any of you have played this stock?

not2old

on that point

Suppose at age 35 you have a 3%, 25 year amortization mortgage paying $xxxx/mth in payments for 5 year term

At the end of 5 years you will have paid approx 15% off the principle + 14% in interest payments.

http://www.amortization-calc.com

During that time property prices increased modestly 15% over the 5 year that you have owned/mortgaged it.

Some folks will say, eh, I paid $100,000 for the property (in multiples of that number) its now worth 15% more & I've paid 15% off the original principle

On the 5th year renewal date why not simply renew the mortgage for another 25 year amortization term instead of the remaining 20 years, assuming the mortgage interest rate is the same

Take money out of the equity & invest it at a return higher than what the mortgage rate interest is?

Or because mortgages are typically mainly all 'interest' for the longest time, why not pay the mortgage off as quickly as possible in say 10 years (if it's doable), then take out equity & invest it.

Funny thing about 'time' & how unexpected things come around, life cycle changes, never knowing what's around the corner, economic changes, job losses, children, spouse/partners.

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Photoplex

In general, airlines are a bad investment. They've been viewed that way for decades.

I know Warren Buffett recently made a move into that space, but even he said "everyone knows airlines are a bad investment, but I think that might change".

not2old

interesting comment, makes you wonder what Buffet knows

UAL fundamentals look promising

P/E 10.2

EPS $6.95

Price to book ratio 2.5462

Total assets $40 Billion

Total liabilities $31 Billion

morpeth

With all due respect it is a simple calculation- if one has a fixed interest mortgage at 3%, and one can safely invest to earn 5 to 6.5% ( and especially if one reinvests the earnings) it doesn't make sense to pay down the mortgage early from a financial point of view. And as you say things happen in life, even more reason to have the ability to access funds quickly instead of locked up in a long term asset that is relatively illiquid in the short term.

As far as tapping into the equity to gather more funds for investment, while that may make sense, due to the psychology, financial ignorance and materialistic behavior of most people, certainly I don't think that usually would be a good idea.

One problem is the lack of discipline about financial matters- for example cash value life insurance usually a poor long term investment, but for those who aren't disciplined about saving, or dip into their savings from time to time, it actually in some cases could be a good investment choice. Same sort of argument could be used for making monthly purchases of an annuity.

The bigger issue is the lack of financial discipline, and over-spending of most people. If they end up dipping into investments for a car or vacation or the latest gadget, the perhaps paying down the mortgage is a form of forced savings.

not2old

morpeth @ post #39

I am not proposing any particular investment strategy or any particular instrument/vehicle

The point only taking a $100,000 mortgage (or it's multiples) was that for the example above (using the amortization schedule) of a 3% interest 25 year term mortgage, that the first 10 years of a 25 year amortization its a heck of a lot of interest paid, the then remaining principle outstanding at the end of year 10 is close to $65,000. That is without any lump sum payments or interest rate changes

Financial know how & discipline don't always go hand in hand & as history as shown time after time, not even the best savvy investors can get it anywhere close to right.

Of course you will always have those that will tell you 'I made 100% return in a short time on a particular investment' to 'well I prefer to have XYZ vehicle that has never let me down'

Anyone that spouts their successes usually don't disclose their losses

Investing is not for the faint of heart, nor is the best financial advisor your friend

Over a 25 year period anyone that has achieved a full non-compounded 5% average year over year or better return has done well - excluding real estate investments

morpeth

No disagreement that a mortgage costs a lot of interest over the years, just that to save X to forgo making 1.5 times X doesn't make financial success.

I do believe a reasonable person with some discipline, healthy skepticism, and a somewhat reasonable financial advisor can make 5% a year over the long run. Compound interest/dividends works wonder over the years, as well.

Unfortunately my observation is (a) people like to spend more than what they need to (b) like to buy high and sell low.

not2old

morpeth @ post #41



sorted & thanks for the discussion

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morpeth

and thanks to you, an interesting discussion.

not2old

Being the devil for punishment that I am

Paying a mortgage or earn money from investing in them?

Picking up on the points above regarding having a mortgage or not vs investing (in whatever) to get a higher return so that income can go to or pay towards a mortgage

Way back when in my early years in Canada we made a small investment in private second mortgages. Buying them at a discount, the return was decent, it was a product available at the time that worked in our favour.

Today's investment vehicles are way more complex, although personally these days I'm not into sophisticated investing.

On a google search I found that Mortgage investment Corporations (MIC's) are everywhere. Private for 'accredited investors' to ones listed on the stock market.

From that google search (don't you just love google) in Canada there appears to be a few that provide investors steady dividends, that have positive EPS and trade within 10% of their range.

Having a 3% mortgage on the property that you live in - most of which the payment is interest the first 5 years of the life of a 25 year term mortgage, folks are paying almost double in what is actually going against the principle - then a (pick a number) 8% MIC would net approx 2% + return after folks payout their mortgage over the first 5 years.

On a $100,000 mortgage (or in multiples), with a 3% interest rate,5 year term, 25 year amortization the payments are approx $473/mth. At the end of the 5th year $14,526 was paid towards the principle with $13,869 paid in interest - a total of $28,394 in payments, mortgage balance approx $85,474

For or against paying down the mortgage faster with lump sum top up's, a shorter amortization period or try to invest to get a higher return to produce cash flow that is greater than the total mortgage payments over the first 5 years of the mortgage life?

To make this a worthwhile proposition I would want a consistent double 'percentage' net return rate from any investment against what I pay in interest to others.

including mortgage payments, loan payments, car payments, credit card purchases/interest etc


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morpeth

I really don't know how to answer except the math is very simple. if an investment earning 8%, and the mortgage is 3% ( everything else equal) there isn't any reason to pay down a mortgage from a financial point of view.

However as discussed there is the issue of type of investments and financial discipline.

In regards to investing in private mortgages , been there as well. One avenue though that I think is worth looking at is some of the P2P companies/sites in the UK that take some of the bother out of such loans. Mix up 2 or 3 of those sites, and making 6.5% to 13%,and say ending up on average 8% is quite possible safely.