Are there any disadvantages to paying off your mortgage? Can you always just get another mortgage later on, or doesn’t it work that way? This is in Canada, where mortgage interest is not tax deductible.
I’m not aware of any. Unless it places you under undue strain financially to do so, the sooner you pay off your mortgage the sooner you have that amount per month available to you for other things. At worst, keep placing the same amount in a TFSA or investment fund.
Iirc, some mortgages used to have (maybe still do) a maximum payment clause, limiting you to the amount you could repay per year without additional fees. That’s a protective measure for the lender to ensure they receive due compensation for the service of loaning you the money. (Imagine if you paid off your 25-year mortgage in the first 2 years. The bank set up that mortgage expecting you to be repaying for at least 10 to 15 years based on averages, so that’s a lot of interest payments lost for them.)
You can always secure future loans against the equity in your property, and the more equity you have, the safer a bet you are from the lender’s perspective.
I am useless at the tax stuff so no comment there. I’d recommend you speak to a certified financial adviser. There can be a lot of benefits to connecting with one and sticking with them through your life. They can advise on a very broad range of topics and help with decisions like this, in my experience.
Good luck with it!
@paddythegeek
Great advice - thanks!
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if you have other loans, then obviously you should pay the highest interest loans off first. Usually the mortgage would have the lowest APR of all your debts and thus should be paid off last.
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if the interest you pay on the mortgage is less than the interest and dividends that you would earn on the money you would otherwise pay the loan off with, then it’s a bad move. I know someone who bought a new car and was able to buy it outright. But the low interest loan that was offered by the dealer as an incentive was so low that it actually made sense for her to take the car loan and invest her money, which is what she did. Usually it’s the other way around (people get burnt by having savings and debts at the same time), but not always.
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You can’t always get a new mortgage if you need one. Long term unemployment and critical illness being two scenarios where you’ve lost your income and need cash. If you rely on two incomes to qualify and you are divorcing or get widowed, that’s a problem. Also if you are in the middle of a divorce, you might be restricted from mortgaging the property until it is disposed of in some way.
@ShivTheShiv
Smart things to consider, thanks!