Average Mortgage and Interest

According to the CMHC, in Q4 of 2016 the average mortgage loan size for Ottawa-Gatineau was 234,077 and Montreal was 213,574.  I’m being biased focusing in on these areas as they’re closest to home for me and my initial potential readers :). The lowest posted interest rate I could find was 2.55% for a 5 year variable on ratehub.ca. Taking an average of 223,826$, the total interest over 25 years would come to 82,865$.

Assuming a 10% downpayment, that means that on average homeowners are paying 324,073$ for a house worth 241,208$. That’s a big chunk of change!

Traditional Advice

When I took out my first mortgage I was told to make bi-weekly payments instead of monthly and to max out the mortgage and make lump sums as much as possible in order to reduce the interest and for a long time I believed this was the best way, until I did the math myself!

Going Against the Grain

What I found was: by taking the longest possible mortgage available to you (say 25 years) and making the absolute minimum payments you can make WHILE investing just 103$/month into a self-directed investment account at the same time at an interest rate of 9% (feel free to subscribe for future posts on how to achieve this :)), you can completely cancel out the 82,000$ in interest AND end up with a portfolio worth 364,370$ (241,208$ house, 39,950$ principal investment and 83,212$ in interest growth) with the assumption your house neither increases or decreases in value over that time.

I think most people should be able to scrounge together 103$/month per household (51.50$ per person in a couple) but if not, feel free to follow along for future money hacking posts as well as how I’m investing should you wish to see how my investments do before you take the plunge.

No Gain Without Risk

Now I know there is a psychological element here as well where people want to own their own home outright without owing the bank to hedge against future interest rate hikes, but if you are investing at the same time the interest in the investments usually rise with mortgage rates too. At the end of the day though you need to decide what you personally are comfortable with BUT I hope that this gives you something to consider should you wish to take a little risk in order to maximize your return on your hard earned cash!

Math Warning!

And now for the math for those that are interested. With a 25 year mortgage at 2.55% the monthly payments are about 1,008$ (annual totals detailed below in the column on the left). If you invest 103$/month or 1,236$/year at a rate of 9% (the historical annual stock market returns which I will demonstrate how to achieve later) – you will end up with interest which equals the interest paid on your mortgage over the 30 years.

So to compare: if you just pay off your mortgage without investing along side you would end up with an asset worth 241,000$ for which you paid 346,000$ vs. paying off the mortgage as slowly as possible while investing and ending up with an asset of 241,000 PLUS 104,000$ in principal investments where the interest of 83,000 has been cancelled out.

I did not account for inflation as both the mortgage payments and investment amounts will be with future money which will include inflation amounts on both sides.

What do you think? Would you consider lowering your mortgage payments and extending your timeframe in order to invest along side? Feel free to comment below.

Still not convinced? Read on to see how paying your mortgage off quickly before investing can end up costing you 550,000$.