Choices to make as we edge closer to paying off our mortgage
Sarah and I are working very hard to knock out the mortgage on our house as soon as possible. We are on track to be mortgage free by our early-mid 40s. This is depending on what life has in store for us in the next little bit. The reason why we have been focusing on the mortgage is about commitments. Math-wise it makes more sense to invest in our retirement savings. We have RRSPs – and the money we contribute to them lowers our taxable income. That leads to nice tax refunds which we then reinvest. If we ran into any financial difficulties we would stop contributing. We would still have a fat mortgage to pay off. Once we are mortgage free we can then focus on retirement. Currently we do contribute to our RRSPs on a consistent basis. Any extra we come up with goes to the mortgage. While that is our current plan, things might change as our priorities shift in life.
With our current plan we have the potential to be mortgage-free in the next 10 years. That would leave us with an extra (roughly) $2k monthly that we could then throw into retirement savings. We of course could also use it to bump up our vacation fund, or for any long-term goals we develop. Having the freedom to use that money in any number of ways is appealing – especially with a growing family.
The other advantage to going this route is that our mortgage will be much smaller when it comes time to renew. With the real estate market where it is (especially in the Greater Toronto Area, Vancouver and Montreal), I imagine the mortgage rates will be steadily climbing. That means that when we renew we will likely be at a higher rate than we currently are. Having a smaller balance will certainly help with the increase in interest.
A little over a year ago we posted about how we took 6 years off our mortgage. With the job loss and subsequent new job at a lower pay we had to make some changes to our payments that slowed down the process a bit. With some other upcoming plans we should be able to make up for that and then some. If we are able to keep on track with our mortgage elimination it would be good. We would end up with around 20 years of working while being mortgage free before retirement. At $2,000/month that would equal almost half a million dollars of extra cash or investment fodder!
We are currently in agreement that we would like to try and be mortgage free as soon as possible. What we do with the extra money once this mortgage is paid off may change. One possibility would be to purchase a second property. This could be a vacation house somewhere down South. Another option is a cottage somewhere in Northern Ontario. We could just buy another regular house that we could renovate and make our own top to bottom.
This approach would definitely throw a wrench into our plans of being mortgage free. We would be starting from scratch on a new mortgage. If this is the way we end up going, it will be a conscious decision. We will have accepted the outcome. The biggest issue with buying a cottage or a vacation property is the amount of use it would get for the money.
While Sarah is on a 15-month maternity we both work full-time and our careers are important to us. That means we would likely not have more than a few weeks a year. Maybe the occasional weekend for vacation. We both have multiple places we want to see in the world. Dedicating all (or a good chunk) of our time off at a vacation house wouldn’t make the most sense. We could of course rent it out, but it would more likely end up being a freebie for friends and family to use.
Buying a second home as a renovation project is something we both could get behind. We purchased our house new from a builder – and while we didn’t shell out the major money required to customize the house we have sunk some money into renovations. We love to do things ourselves (with a little help and expertise from the father-in-law). Tackling a house that needs some real TLC would be a fun project.
The last option would be to upgrade on our current house. Our house suits us quite well but as a 3-bedroom middle townhome we don’t really have a lot of room to stretch out the legs. In terms of growing our family we do have some limitations in this house. With baby Ava already here we are down to 1 spare room currently set up as a guest room. If we are lucky enough to have a second the rooms will be full but we can still make it work. With the work we did in the basement we have a bit more living space than we did when we first moved in. If we want to go for lucky #3, we will VERY quickly outgrow this house.
The big issue with moving is location. Many people in our area (just outside of Toronto) move further North from the city to get into a larger house. This doesn’t suit us since we love the area we live in, and neither of us wants to increase our commute to work. In our area there is a complete lack of reality in terms of housing costs. While the market is cooling, there are still people in our area asking over a million for a middle unit townhouse. For us to go into a semi-detached wouldn’t make the most sense since the only reason we would move is for an extra bedroom and there aren’t many 4-bedroom semis around us. So we are looking at a detached house. The range for a half-way decent detached house in our neighbourhood is currently between $1.4 and $1.8 million. Even with the equity we have gained through aggressive mortgage payments and from market growth – we would be looking a 7-figure mortgage. At that point in our life being mortgage free a balance that high goes against the fabric of our wishes.
Which Way To Go
I’m pretty confident we are going to be in this house for another 5 years at least regardless of what we do in the future. If we cap out at 2 kids – we’ll make it work with the room we have and then shift our focus to savings and seeing the world. We don’t want to have the house stand in our way of making the choices we want for our family though, so that will be a factor in our final decision. Projections aside, we have had numerous detours in our plans the last couple of years (some welcome, some not so much) and it would be naïve to think everything will go to plan from this point on.
Which of the three would you prefer to go if you were in a position to make the choice?