Friday, May 4th, 2012
As some of you might know, I have had a frequent battle with myself about whether or not to pay off my mortgage early.
Because I was paying just 2.5% on the mortgage proceeds, it was a very difficult decision to sell off some of my equity holdings and liquidate some of my savings to pay the mortgage out completely.
At the beginning of March 2012, I started selling off some stocks and finally paid out my mortgage on March 16, 2012.
Why Paying Off The Mortgage Was Right For Me
The one constant that we have in personal finance is that everyone’s situation is different. That is, in effect, what makes personal finance “personal” after all. 
In my particular situation there were a few things that seemed to align, leading me to the conclusion that paying the mortgage off completely was the right thing to do.
1.) Variable Rate Mortgage
While I was paying just 2.5% on my mortgage, it was a variable rate mortgage (Prime – 0.50%). This means that the rate could change in the future, and at this point, rates really have nowhere to go but up!
That said, I had paid down the mortgage enough that even a sharp increase in the rate wouldn’t make or break my ability to service the debt. However, any increase interest rates would result in me sending more money to the bank – I think we can agree that sending more money out is not the ideal situation.
2.) Cash Flow Analysis
Cash flow is the ticket to play the game!
You may have heard me say that before, but it is absolutely true. Regardless of your balance sheet, if you are not generating enough cash to service your expenses (liabilities) then you are drowning.
In this case, it wasn’t that I was not able to service my expenses, but the fact that the amount owing on my mortgage balance required more in cash out-flow each month than the corresponding savings/investments were producing. Put another way, my monthly mortgage payment was higher than my average monthly income stream from my savings and equity holdings.
3.) Emergency Fund
As you know, it is very important to have an Emergency fund. Many financial gurus suggest 3-6 months of living expenses. I am more conservative than that and preferred to wait until I had an emergency fund of 12 months of living expenses.
What is important to note is that my mortgage payment was my largest monthly expense. Once I had amassed enough to pay off the mortgage and still have 12 months of living expenses covered (not including the mortgage payment, obviously) I felt I would have enough liquid cash available for emergencies to pay the mortgage off completely.
4.) Stock Market Rally
Over the course of the previous several months, the stock market had been rallying without any signs of retraction. Many of my holdings had been reaching 52 week highs or all-time highs and the metrics did not seem to justify that kind of steep advance in price. In addition, any rally of several months without a pause or retraction is generally unsustainable.
Note: I am far from a successful technical analyst or market trader, but the length of the rally and the fact that I was finding it hard to justifying adding to existing positions or entering in to new ones, led me to believe that the market may be over extended and it might be a good time to cash out and pay off the mortgage.
As you can see, it wasn’t just one factor, but a number of factors that came together at the same time that led me to believe that paying off my mortgage was the right decision.
It should also be noted that none of the equities or savings that I liquidated to pay off the mortgage came from retirement accounts or my retirement pension/employee savings accounts. It is of the utmost importance that those accounts stay in tact.
As with all decisions related to personal finance, everyone’s situation is unique. This post is not advice for you to pay off your mortgage, or follow the same path that I took. The above set of circumstances just happened to come together for me and led me to the decision to pay off my mortgage.
If there is enough interest, I will provide a follow up post with the dates, prices and names of the stocks that were sold to pay off my mortgage.
If you have paid off your mortgage, or are planning to in the near future, I would love to hear your story in the comments!
Cheers!
Posted in Real Estate | 2 Comments »
Monday, October 10th, 2011
If you’re still standing on the sidelines in cash at the moment, here are three good reasons that you should be invested in stocks right now.
- An investor’s choice of asset allocation is the single largest factor that will influence the probability of long-term success. Historical evidence suggests that cash investments return the least amount over the long run.
- There is significant upside potential in equities for long-term investors right now. Stock valuations are well below their highs and have a long way to go to be back in line with what we consider to be fair value.
- Sustained low interest rates and dramatic increases in money supply combined with increased deficits have many fearful of the inflationary impact once a true economic recovery takes hold.
Money market investments, non-market linked CD’s and high interest savings accounts offer little protection against the wealth eroding effect of inflation.
That is not to say that there is no downside. In fact, there is an inherent risk when investing in equities and there may, in fact, be another leg down.
However, I believe the risk vs. reward payoff favors the astute dividend growth stock investor at this time.
Posted in Investment News | 8 Comments »
Friday, July 3rd, 2009
With the end of June comes the start of summer: warm air, hot beaches and, sometimes, choppy waters. The following is a recap of last month’s market action and key developments from “30,000 feet” .
The month of June saw North American stocks end up in slightly positive territory. On a total return basis, the S&P/TSX Composite Index gained 0.3% and the S&P 500 Index was up just 0.2% .
However, volatility in the C$/US$ exchange rate was a big story yet again as the return on the S&P 500 in C$ terms was 6.6%. The story was similar for international equities. The MSCI EAFE Index (Europe, Australasia and Far East) was down -0.8% in US$ terms but up 5.6% in C$.
In June, the C$ lost ground against the US$. This was in stark contrast to May when the loonie posted its biggest monthly advance versus the US$ since 1950. We expect currency movements to continue to be hot topic in the weeks ahead.
Energy and Materials were a drag on performance for the S&P/TSX last month dropping 2.2% and 6.6% respectively (these two sectors represent 46% of the index currently). Even with the 2.2% pullback in Energy, the sector still posted an almost 22% gain to close the second quarter. Solid gains in Industrials, Consumer Discretionary and Financials (in particular banks which were up 9.8% this month) were sectors that kept the S&P/TSX in positive territory in June.
Key Messages
While uncertainty still looms, the data suggests that the worst of the economic and credit crisis appears to be behind us. Although U.S. consumer confidence numbers released earlier this week fell to 49.3 from 54.8 last month, the confidence index remains well above February’s low of 25.3. Many other indicators are now suggesting an easing in the pace of economic contraction in the aftermath of the deepest, most synchronous recession in the world economy in 60 years.
Most analysts expect continued volatility in stocks, currencies, and economic indicators as, although many agree we have embarked on some type of recovery, the timing and pace of that recovery may prove to disappoint investors.
For investors this means that our balanced, long-term view is as important as ever. There is still value to be found in dividend growth stocks.
Dividend Money purchases in the past month include:
Transcanada Pipeline (TRP)
Sun Life Financial (SLF)
Royal Bank (RY)
Bank of Nova Scotia (BNS)
Power Corporation (POW.TO)
Posted in Investment News | 1 Comment »
Wednesday, May 20th, 2009
Since the credit crisis began in August 2007, experts have agreed that there is no magic bullet solution. The general view is that world economies will eventually recover but the healing process will take time. Along those lines, here is REAL data that represents REAL steps in the right direction.
Here are two recent examples:
- Global credit markets continue to thaw as government cash injections and interest rate cuts kick in. Last Friday, the London interbank offered rate (Libor) – the interest rate banks charge each other for loans – fell the most in eight weeks to 0.85% for three-month U.S. dollar loans. Libor, which determines rates on everything from car loans to mortgages, peaked at 4.82% at the height of the financial crisis last October. Last Friday’s fall in three-month Libor was the 33rd consecutive day of declines – the longest stretch dating back to January 2008.
- Last Friday also marked the 10th consecutive day of gains for the Baltic Dry Index, which tracks ocean shipping rates for commodities. This was the longest advance in three months and the index hadn’t been that high since last October. The index is followed by economists since it can provide insight into the level of demand for raw materials in global markets.
Whether it’s banks starting to lend again, demand for raw materials picking up around the world, improved housing affordability in the US or the fact that the stock market rally since March 9th is now the largest and second-longest rally in the past 18 months, it seems step by step the pieces required for recovery are falling into place (albeit baby steps).
That said, the recovery path could still look like “one step forward, two steps back” for a while as we were reminded last week by weaker than expected April retail sales in the US and soft Q1 manufacturing sales data in Canada.
However, we can see that the LIBOR rate, the key indicator for credit movement, has decreased drastically. By all economic measures, this is a great sign for business and as such, a good sign for investors!
Posted in Investor Education | 5 Comments »
