We all want to be mortgage free! Can I get an amen? This is something all Canadians work toward and dream about but few attain. Yet a surprising amount who do find out shortly after that life’s goals don’t stop on mortgage freedom day and then lifestyle and travel or renovation plans require borrowing again. Kind of redundant isn’t it? Did you know that there is a better way? You won’t find your banker promoting it though. Let’s go deeper and find out how to get out of the bank’s mortgage box and get you mortgage free with a retirement nest egg to boot.
Barrie’s Bank Mortgage Box
Did you know that you are trapped inside the bank’s mortgage box? This is the place where we play by the bank’s rules and use the bank’s programs to pay down our mortgage early. Things come to mind like accelerated bi-weekly payments and doubling up your payment once a year. And don’t get me wrong, they do in fact pay down your mortgage early. But before you get caught up in the glitter and glam of their numbers, ask yourself to what end? Those who pay off their mortgage in 20 years rather than 25 have saved some money on interest but there is a lowest common denominator here that begs illumination. The time in your life where you will need the most liquidity for children’s education, lifestyle, and retirement is where you will have put all your eggs in one basket. Your home. And that home isn’t paying you dividends. Is this the picture of your future? Maybe it is the banks picture as it will require more borrowing from other sources where they earn higher interest from you. And Reverse Mortgages are expensive and restrictive (and also on the rise). Back into the bank’s mortgage box you go. There’s got to be a better way!
Understanding Your Mortgage
Our friend ‘Jimbo’ walked into my office and was adamant about paying off his mortgage in the next 10-15 years. He had accelerated payment schedules, increased payment amounts, decreased amortizations – you name it – he had it – and it was killing him. He was to the point that his marriage was about to break, his kids didn’t want to talk to him, and the dog stuck up his nose when our penny pincher entered the room. Jimbo did not understand that he was caught in the bank’s mortgage box. I took the time to explain to him what he was experiencing. He had purchased his home for 300K five years ago. Today he owed 245K and had a mortgage payment of $1,975.39/month. Then we did a quick calculation of what the real cost of his mortgage was by taking him out 20 years. $1,975.30 X 12 months X 20 years = $474,072 to pay off his home, even using the bank’s tools. $474,072 – $285,000 (original mortgage) = $189,072 in mortgage interest. Jimbo sneered. But that wasn’t all because this $474,072 were his after tax dollars or $790,120 to pay off his 300K home. Now my friend Jimbo was livid! How do they get away with this? I told him that this is what happens when Canadians play inside the mortgage box by the bank’s rules.
Prudent Leverage Done Right in Barrie
After letting Jimbo fume for a while, we got down to what he could do to make his own rules for paying off his mortgage in 10-15 years. I laid out to him that his property had increased in value to 365K over the last 5 years and that we would be able to borrow another 47K and lower his overall borrowing costs to $1,120/month for a total invest able assets of $57,260 in year one. I explained the rule of 72 where his future Mortgage Investment in second mortgages or other asset backed investments earning a compound interest of 15% would double every 4.8 years providing a potential mortgage freedom date of what Jimbo was looking for. But this is not the end of our story…it is just the beginning. When Jimbo arrives at his future mortgage freedom date he will know beyond a doubt that he would be dumb as a nail to pay off his mortgage at that point. Because he will have an investment of approx. 250K that has the potential over the next 4.8 years to double into 500K (rule of 72). This is how we circumvent the bank’s mortgage box and retire in style!
The bank has spent a ton of money and resources to come up with ‘marketing schemes’ in order to get more of your money into their hands. Accelerated mortgage payment, increased payment amounts, and decreased amortizations are programs that do not work for most Canadians as they are restrictive, stressful, and the end result is undesirable. There are so many options available to those willing to take the time and educate themselves on the types of returns available to turn your mortgage freedom date into truly that. A nest egg to carry you into the future with comfort and security and retire with a significant positive net worth – not house rich, cash poor. Your questions are always welcome and I am available to assist you in anyway you need with your Barrie Mortgage Freedom plan!