020: Mortgage vs. Investing | Maria from Handful of Thoughts

Intro
Welcome, everybody to Explore FI Canada podcast—the future of personal finance in Canada.

My name is Ryan Myricks. I’m from Kitchener, Ontario and the author behind canadianfire.ca and the co-host of this little podcast, joining me from Vancouver BC is my co host and blogger at eatsleepbreathefi.com Chrissy Kay. Hey Chrissy.

Chrissy
Hi, everyone. How are you doing Ryan?

Ryan
I am fantastic and you?

Chrissy
Great

Ryan
Sweet. Sweet. Chrissy, you and I are both admins of ChooseFI local groups up here in Canada and we see a certain type of debate spring up all the time. In fact, if you look anywhere on the internet, you see this debate raging on the question that sparks at all is always, should I pay down my mortgage first? Or should I invest in the stock market?

Which really boils down to, at least in my opinion, should I reduce my debt load or go with the math? Do I sacrifice potential market returns for the guaranteed return of paying off my mortgage? This question is so famous that is talked about on major fire platforms all the time, like Mr. Money Mustache, or ChooseFI. Everybody has an opinion and I’m pretty sure the Money Mechanic’s rescue dogs even have weighed in from time to time, Chrissy, you’ve noticed this too?

Chrissy
Oh, for sure. It’s an age old debate, whether it’s in the US or in Canada. It’s a constant ongoing battle for people and for some of us, it’s not so hard to make that decision for example for me, but others have struggled with this because you really can’t go wrong. Either way, it’s not really a right or wrong decision. It’s what makes the most sense for you. And so our guest today, Maria, with at the blog handfulofthoughts.com will be talking to us about this. So I’ll just say hello to you first Maria, how are you?

Maria
I’m good. How are you guys?

Chrissy
Great.

Ryan
Thank you.

Chrissy
We received a lovely email from you a while back and I thought I’d just read it out to intro you and get us started. So you said to us:

“Loving what you’re doing. It’s great to have a Canadian focused FI podcast to listen to. I’ve binged from the beginning and look forward to new content. My goal is to one day be a guest on your podcast. I paid off my mortgage in under five years through various hacks. I know paying off a mortgage may not be the best investment decision but it was the right one for our family. Please keep up the great content. The interaction between the three of you makes it easy to listen to. Definitely a new podcast I will be recommending to all my friends.”

So thank you for sending such a great email. And thanks for exploring FI with us today.

Maria
Oh, no problems. I’m super excited to be here. And thanks for all the content you guys are producing. It’s so nice to have Canadian, you know, specific content. There’s not a lot out there, but it’s coming. It’s definitely getting more popular.

Ryan
Well, thank you so much. It’s when you sent that email. I’m pretty sure immediately I sent back do you have a headset? I didn’t have to say really anything else it was I really want to talk to you because someone willing to put in just a little bit of effort and talk about paying off mortgage and I knew that this is a financial independence hurdle for everybody. Almost nearly every single person who owns a home has to deal with this question. And so I’m really excited to be able to talk to you about it today.

Maria
Yeah, I it’s interesting because we paid off our mortgage, and then have recently moved and have another mortgage again. So now it’s the conflict. We’re constantly thinking about it again and debating what should we do now a second time so it’s definitely even if you do it once it’s still in the back your mind all the time.

Chrissy
So how about we start with a couple of minutes of you telling us your journey, how you started, how you paid off your mortgage, and then how you wound up with nine rental properties now.

Maria
So I been on my journey I think I was like almost a lifer. Without really knowing I was pursuing FI. I think I was pursuing FI. I’ve always been a saver. I was that kid who just would hoard money and save birthday money. I never knew what I was going to spend it on, but I just would save it. And so I was always been a natural saver.

And then I got when I met my now husband, he was not a saver. He was a bit of a spender. And so it was interesting, kind of melding the two and we do joint finances and everything together. And so it was interesting because we realised, well, I’d like to save and he likes to spend so we found this kind of medium route of medium road of people we can still spend and save and enjoy things. So that was really important to us.

And because I was always you know, a saver. I lived very minimally and I was always a worker. So whenever there was overtime or anything like that we definitely worked. So it’s very easy not to spend money when all you’re doing is working. It’s definitely good and easy for that road. So when we bought our first home, we it was so funny.

I remember, we got I think it was 3.79 was our interest rate. And we thought it’s never going to go low, or we’re going to lock it in. And then we just laughed because we had no idea what we were doing, obviously, because interest rates since went lower and up and all sorts of things.

But when we first sat down with our mortgage broker, she had told us that oh, well, you could do these biweekly accelerated payments and instead of 25 years, you can pay off your mortgage in 20 years. So we thought great, that would be awesome.

I’ve always been debt averse and so even though mortgage some would say is good debt, I just to me it was debt and I didn’t want to have it. I always wanted to. I never really wanted to own home or be feel like I was locked down. So having a mortgage really kind of gave me anxiety. I didn’t feel like we could pick up and go at any moment.

So we locked it in, we did accelerated bi weekly payments, and we’re like, okay, well, we could pay this off in 20 years. That sounds like a good plan. And then we just really started, you know, kind of optimising things. So we were travel hacking and I got to travel a bunch with work. So then I would often just bring my husband along because my flights and hotels were paid for. So it was easy for him. So it was easy to kind of do that sort of thing.

He worked a lot of overtime, I worked a lot of overtime, I went back to school, actually, and got another degree so I could double my income. Now, my wages, I’m making almost three times what I was making when I first started out before I went back to school. So I mean, there was all these little things that we did. And we just kept kind of throwing money at the mortgage throwing in the mortgage.

So we had taken on an investing kind of online course for a while and I was so confused. I didn’t know what was all these terms, and it sounded so confusing as far as like, do you short sale or do you have a put or buy and selling all these stocks and it would go up and go down and I think we were very highly influenced by our parents, both of our parents had paid off mortgages. And I mean, they had mortgages back in the 80s, when interest rates were way higher, and things like that, and they were so scared of the markets. And so I think there was a little bit of that in with us as well.

So we were just like, well, we can control our mortgage, I understand the mortgage, I know how to pay off a mortgage. So let’s just put our money at that. So we still invest into RRSPs, because we had company matching programs, and we saw the tax kind of we love getting the tax deduction. So there were some years where we would max out our rsps and then take that money and put it on our mortgage.

We kind of developed this like, six months of the year, we’d say for our mortgage, six months, the year we’d say for our RRSPs, kind of a split thing. And we were lucky, we’re high earners with very low expenses at the time, we didn’t have any kids or anything. So we just kept putting things at the mortgage.

And then all of a sudden, we get our annual reports. And it would be like, whoa, we can pay this off in 17 years. Whoa, we’re at 12, I think and all of a sudden it was four years and 11 months and instead of renewing our mortgage, we just paid it off and it was just, we had no idea deal with that was not our intention we first started, like I said it was going to be 20 years, that would be great. 17 even better.

And all of a sudden, it just kind of got away from us. And it just became almost like a game we just gamified and was like, okay, well, how low can we get this now? And then we were mortgage free. And it was just like, well, now what do we do?

And it felt like we were printing money every month, because the amount of money you have to put on a mortgage to pay it off in five years is very high, like it’s excessive. So now all of a sudden, we had this disposable income every single month. And we’re like, oh my God, what are we gonna do?

And I remember talking to we talked to a financial advisor, and he we still work with him today. And he’s awesome. And he said, well, because we’re like, oh, we’re gonna we’re going to get real estate now and things like this. And he’s like, you don’t need to, like, you can that’s great, fine, but you really don’t need to if you guys just keep saving how you’re saving, you’ll be fine kind of in the long run.

We’re like, oh, okay, well, we kind of want to buy real estate like again, real estate was just almost like a game for us. The also part of the reason why we want to pay off the mortgages, I knew that if one of us lost our job, the other one couldn’t afford to live there. So my husband makes more money than I do. And he lost his job or something happened to him. I couldn’t afford that mortgage by myself and I never wanted to lose our homes.

If we had kids and they’re growing up there, I didn’t want to have that risk. And maybe that’s kind of worst case scenario. And we have life insurance and things like that. It was just a bit of maybe fear mongering, but I never wanted to lose that home.

So that was really important for me. And everyone’s like, well, you can leverage this and do this and get in real estate early. And it was I was never comfortable doing anything until that home was paid off. And then after that, all of a sudden was like, well, we have this extra money, what do we do with it?

And again, we still at that point, did not understand the stock market. That was our own, you know, lack of information and so we just started buying rental properties and using leverage and then at first we’re like, oh, we’re gonna buy 10 that seems like a good number and then it was like, no, let’s kind of eight seems like a really comfortable number. We self-managed so I told my husband okay, no more eight that’s it. I’m done.

And then when we found we moved to a new home and it was we bought because it was a buyer’s market right now and we’re like, why do we sell our home in a buyer’s market? We converted that one to a night and all of a sudden we’re like, okay, now we have nine properties.

It’s not a long term play, I think that nine to one, once the market picks up, we’ll probably end up getting rid of it and kind of consolidating, you know, circling the wagons a little bit. But it’s just again, it’s a long term play. Real estate is our long term, you know, 10, 15 years from now, it’s really going to pay off for us. So we don’t have to work as long kind of thing.

And then yeah, it just sort of happened. It snowballed from there. Once you started making a game out of it, it was like, Oh, you can do this. And everyone thought will us be like not having a life like you must be eating, you know, rice and beans every day.

And we’re like, no, we still travel like internationally every year. And we still did all these things. And I was like, how did you do it? Like, honestly, we don’t really know. We just kind of optimise things and we’re not. I mean, we don’t have cable. We don’t spend money on that. We don’t buy new vehicles. We don’t you know, have we live in Edmonton, so we don’t have like Ski-doos and all those kind of things. But yeah, I just we kind of aligned it with our spending with our priorities and that was really what was the key to it, I think.

Ryan
So I want to take it back to when you said that you chose accelerated bi weekly payments. And this is really the first I think actionable tip that people takeaway from this podcast is that there are several options for paying down a mortgage that the bank will present you with just for making the payments like weekly accelerated weekly, bi weekly accelerated, bi weekly, and monthly i think is the other option. And just by choosing the exact same payment amount, but choosing something with accelerated in it instantly wipes out four years off of 25 year amortisation. And that’s really magical.

Maria
And I think it’s also really like I wish at the time like it when we signed up for our mortgage, nobody was even talking about like a 15 year term or 20 year term, it was always like, well, you get a 25 year term, that’s what you get. And so I think also like looking at, well, what if we got a 15 year term? What would those payments be? Cause sometimes those payments might also work, so you don’t necessarily need that accelerated but you’re shortening your amortisation or your loan time anyway, that way too, is a good thing to look at.

Ryan
And you mentioned also before that you really gamified paying down your mortgage. So if you don’t mind sharing who your mortgage was with or how you could, like were there prepayment options that you took advantage of? Is that how you got it down, you know, from the 19, to the 17 to the 12? And then it just became a game to you? What what levers did you pull there?

Maria
Our mortgage was with Bridgewater bank, I don’t even know if they still do mortgages anymore. We so we had gone through AMA through their mortgage kind of team, which again, I don’t think they do anymore either.

So our mortgage was was Bridgewater bank. And so, we could put down 20% a year as a prepayment option without any penalty. So one thing that we did was, we would always track it. So anytime you put, we’d send them a check. It was nothing was online at that time. So we would send them a check. And then they would send us a new updated statement.

And so you could see like, oh, these are the next set of payments that we’re going to make and look just by putting that extra, you know, thousand dollars or whatever it would do. That would make the next mortgage payment would be way more towards principal and less towards interest.

So we got to kind of watch that and it would show, well now this is how much you have left on your mortgage and it kept knocking down that time. So I think that was one of the things that we could just it was so easily trackable, and that was sent to us. And so once you could track it, it was like, oh, okay, you can see what happens.

So one of the things we did, which I don’t know, if it’s really FI or I’d recommend it to people is we didn’t have an emergency fund. So we would just save this bundle of cash. And then once, once a year, we would put it towards the mortgage, and then another time of the year, we put it towards our RRSP depending on the time of the year, so our mortgage anniversary was in August so before that anniversary, we would put a lump sum payment down.

And so then that next month, we would kind of be emergency happen that next month, we would be like okay, now it’s going to be on the credit card or things like that. We were lucky to never have an emergency that next month, because then we would just start stockpiling cash again and then repurpose it again in January would go to the RRSP.

Chrissy
Yeah, we did something similar to that we would max out our RRSPs at least put enough in that we would nullify our taxes and get a bit of a refund and whatever we got in refunds then we would put that straight towards the mortgage so it was tackling a bit of both. We would save for retirement as well as pay down our mortgage.

Maria
Absolutely, yeah.

Ryan
I also just wanted to share that my mortgage, I started it with RBC and actually renewed with RBC as well. And the reason why I liked it is because they offer a 10% not 20% like your bank did, but 10% prepayment each and every year on the anniversary, you could do it anytime between the anniversaries, you had 365 days to come up with the money.

Ryan
You could also increase your payments by 10%. So if you agreed to a biweekly payment of $500, you could immediately up that 10% without any type of penalty, so now your payments came $550 every two weeks.

And the real kicker for that one because that’s not a lot of money. I mean, $50 might seem like a lot of money to you, but when you’re amortizing you know, a $300,000 home, 50 bucks extra is not going to do a lot. It’s not going to put a huge dent into it.

But if you can double it again, that would be fantastic. And that’s the third prepayment option that RBC has given me. So I was able to double up including the 10% any single time I wanted. I could do it every single payment. And that was what my wife and I have done. So instead of 550, now it’s 1100 every single time instead of the original 500 that the bank had agreed to.

And coming up with this cash, of course, is quite hard. And it doesn’t come out of nowhere. And you kind of have to really plan financially and budget very stringently to come up with this cash, but it is doable, and it is possible and that these are the steps that you have to take to paying off your mortgage sooner.

So Maria, I’d like to ask you, what steps did you take purposely in your life? I know, you said that you’re a natural saver. But coming up with this money had to come from somewhere, even if you’re just saving it, investing in the stock market, or what have you. So where did you come up with the money to begin prepaying your mortgage in such substantial amounts?

Maria
Well, before we get to that, I think you really had a good point, Ryan, I think so many times we get hung up with what the mortgage rate is, as opposed to what the terms are. And the terms can be so much more important in the long term of that mortgage than just the rate.

So I think oftentimes when we’re looking or shopping around for a mortgage, we’re looking for the best rate when those terms can also make a big difference. I mean, if we didn’t have the terms we had in our mortgage, we couldn’t have paid it off in five years. Even if we wanted to right there would have been a penalty there. So I think that’s also important. And I don’t want to kind of gloss over that. But that’s also kind of important to look at that as well.

So one of the things that we did was we looked at, well, first thing we did was we moved in together. So before we, I was living in a one bedroom apartment. And so it was we were living in Downtown Edmonton, one bedroom apartment and my husband. At the time, we weren’t married, but he had moved in with me.

And it was cramped and tight. We had 700 square feet, which could be very big, but I was renting from a friend of mine because she lived overseas, so all of her stuff was in the condo, all of my stuff was in the condo, and now my husband well boyfriend at the time was moving in and all his stuff.

We had we had a one bedroom apartment that slept probably like 10 people. It was nuts. Because we have all these coaches and futons everywhere, but we were not there very often, and so didn’t really matter to us. And we worked like we, our motto at the time was like, make hay while the sun shines.

So if there was overtime we took it if there was, I mean, I was working two jobs at the time. So I was working two jobs, my husband would work overtime, and we wouldn’t see each other very much. But again, it was like, okay, it’s time to work and then we would take vacation so we might take a month off together.

And then it was like, okay, let’s recharge reset. And when we were taking that month off, we were often travelling and just trying to optimise that travel. So we went to Thailand on travel rewards points. So mean Thailand is a very cheap country to visit and the most expensive thing is the flight so if we can get our flights paid for with credit card points, and all of a sudden that trip’s not really costing us a lot to be there for a month.

But it was that time that we needed to just kind of recharge. We made sure anything extra we had we sold anything that we didn’t really need. Except for our apparently like three futons and two coaches that we had in our place, but anything extra we got rid of, and we’d sold and made sure we just really pared down to only having the bare minimum.

It was funny at the time. my husband was working up in Fort McMurray and I had a Smart Car. So he actually would drive my Smart Car up to Fort McMurray. And they would laugh at him because he everyone up there is driving these big old trucks and everything like that. And so they’d all be like, hey, let’s go out and we’re gonna go partying on short chains.

And he’s like, my wife won’t let me can we just like party at home and then go out. I can’t afford to buy these like $200 rounds for everybody kind of thing. My wife would kill me because we made a sacrifice at the time that he was going to go up and work in Fort McMurray while I still lived down here. So he would live in both places.

And we were going to do that for a short period of time to get ahead. It wasn’t meant to be a long term thing. So every time he went up there, it was like, no, we’re not going up there so you can party. We’re going up there to get ahead. Like we just had that vision and that end goal and I think that was what was really the motivating factor. We just made those sacrifices because we knew that at the end, it would all be worth it.

What can I say young men love their money, right? I mean, the oil sector yeah, I can only imagine the amount of internal peace and tranquillity it took for a man to drive a Smart Car to Fort MacMurray, the heart of Albertan masculinity and oil rigs and all that right and there’s an airbase as well right by there too, which probably doesn’t help things.

So yeah, that’s, that takes a lot of guts. That takes a lot of guts. But really to make it more serious, it sounds like you just made sacrifices and nothing was really freely given to you. I mean, you’re able to rent this condo but it was small and you admit that it wasn’t exactly the best place because it was cramped, you had multiple people with multiple possessions anyways, just everywhere and your boyfriend or husband, you know, went to leave and live in a different city.

A lot of people are not willing to make that type of sacrifice, let alone drive a Smart Car to go get laughed at. I mean, like of course the you know, the money comes out and that’s why everyone’s out at the buyer buying $200 rounds and then they head to the Ford dealership to pick up the brand new F250 but you guys made sacrifices. And I think that is a very pertinent part of your story. This is how you’re able to pay off the mortgage sooner. It’s because you’re not blowing your money on a lot of stuff that the average Canadian does.

Absolutely. And I think as much as there was sacrifice, I don’t think we ever felt deprived. So well, you can ask my husband because he always tells me he feels deprived. I steal all his money to save it. But it was never about deprivation. I mean, it wasn’t driving a brand new pickup truck wasn’t important to us. So the smart card was fine. Right. And but we still wanted to travel. So we did that.

So it was just, it was a sacrifice. Absolutely. But we also wanted to make sure we lived our life. We could not, I mean, we’re both millennials, we’re not going to wait till the end to you know, enjoy it. So we got to do it now. And I think that was an important part too, is that yes, it’s sacrifice, but you can also kind of put in those little things here and there to reward yourself. Because if you don’t, like that five years would have been terrible had we not, you know, had those times where we went on trips or did those things like went out for dinner and things like that? That was important to us at the time.

Chrissy
Yeah, I see. Like this is a huge debate, not so much within the FIRE community. But mainstream media likes to portray our community as being, you know, extremely frugal. And there’s a lot of deprivation. But a lot of us don’t feel like what we did was deprivation, because I think we’re very clear about what our values are and what our goals are.

And when we do the things that we need to do to get to those goals, it doesn’t feel bad, and it doesn’t feel hard, because we know there’s something at the end that’s even better than what we’ve got right now. And we make it work. And we find happiness in whatever situation we’re in because we know we’re reaching for something bigger that’s more important than all of this.

Maria
Well, and I think it’s interesting. So now that my husband, he’s no longer a camper in Fort McMurray, but he sees some of those still the same people. And he’s like, well, yeah, like, I didn’t have a mortgage and I could do these things.

And I mean, we just had, we’ve got a little 13 month old at home and he took four months of parental leave, so that he could be at home with us sort of thing at the time and it was just like, everyone’s like, whoa, does that like that’s not something you do with the oil patch and things like that? It was like, well, no, this is what’s important to me. And we’ve aligned our spending to be able to do that, right?

We don’t have a lifestyle where we spend every single dollar we make, we can afford to do those things. And all of a sudden, everyone’s like, wait a second, how are you doing that? Now all of a sudden, now that we’re on the other side, we get a ton of questions are like so how did you do that?

And you seem like your life seemed okay at the time and how do we do that? And we’re getting a lot of questions and stuff like that more cuz it’s like, no, you can like live your life and still achieve your goals. And so I think that’s also really important. That doesn’t get put in mainstream media. You’re you’re right on that, Chrissy.

Chrissy
Yeah, you wrote about that in your financial freedom mindset article where you said it ties in nicely with the Slow FI mentality that is put out there by the Fioneers. And I love for you to talk a bit more about that your financial freedom mindset where you know you can you can live this abundant life on the way to financial freedom.

Maria
Yeah, I think really came to light whenever we would travel, all of a sudden we would just get this feeling where it was like, oh life is so great because whenever we travelled, we had, we had our money set aside, and we weren’t thinking about that or thinking about anything else or work. And it was just like, the feeling you get when your shoulders relaxed and everything, it was just like, this is what we want, like, this is what we’re working towards is this feeling.

And it was like, Okay, so now when we come home, how do we get more of that? Like, how do we figure out how to do that, you know, get that feeling. We started doing these little things here and there to make these adjustments and be like, okay, so when we travel, you know, eating out every now and then is important to us.

So so how do we do that at home, for example, and not just eating out for convenience. I hate eating well, for convenience, even though it happens, but it’s like, you know what, we really enjoy sushi. So let’s go ahead and eat sushi because that’s what we really enjoy, for example.

And so it was like, trying to figure out what are those pieces of that puzzle? And how do you start living those pieces now? Because, I mean, at the beginning, we did, I’ll admit we were very in this deprivation mindset. I mean, we cut our budget to the bone, we had allowances and it was just, it was funny to hear my husband talk about it now because you always tell people that he was an allowance and things like that.

But it was. So as soon as we get up to work, he’s like, I’m not having allowance anymore. It’s like, okay, but I still want to, like, achieve things. And it was like, well, no, we can still do that without having, you know, those allowances are cutting things. And it was just how do we slowly ease up on those purse strings? And how do we start to do those things now, so we don’t have to wait until we’re FI because if you did this whole deprivation for a long period of time, it would not be enjoyable.

So I mean, we just moved to a bigger house because it’s a way better fit for our family and we’re way happier here and it was like yes, we have a mortgage again, but and it might delay the time when we’re both you know, not working or achieve FI but this is the right choice for us right now. And if we can enjoy that way more along the way that’s that financial freedom mindset.

It’s not wait until the end. It’s how you have that mindset now, so you slowly make those changes and all of a sudden it’s just this gradual transition and not just this full on and stop.

Ryan
You know, isn’t that funny? Because there are certain things around the house that my wife and I want to purchase. And our old default like response to it is, well we’re going to get that one mortgage free, you know, like, we’re going to pay off our mortgage really soon, less than a year from now. And you know what? That’ll be a post mortgage expense.

You know, it’s funny that you say that. It is a little bit of sacrifice. And I guess it is like a little bit of deprivation. I know people hate using that word and associating it with the FI community. But we should be buying things that we value now. And I advocate for that on my blog, and certainly advocat it in the podcast and on the Facebook groups.

But I don’t know there’s just something about buying decorations for Christmas that make me go, ugh, no, don’t please don’t spend money on that! I would like it, but I don’t want it because I’d rather pay off my mortgage. But once the mortgage is paid off, and money would be going into investments, I kind of think like, ah, yeah, you know, like, Yeah, that wreath looks really nice. Like, we should totally get that. I don’t understand why I have that behavioural process, but I do and I think a lot of Canadians are like me.

Maria
And I think it’s funny that when you realise like my husband is very good for that. He’s very much like, we need to spend on what we enjoy. I’m like, no, we can save it and save it and he just laughs. But I think it’s interesting when you do kind of just let it go. And just like not spend it well but just spend a line it all of a sudden you realise like, that’s one thing I realised my husband like, hey, fine, just go do whatever spend whatever it’s like, when we calculated at the end of the day, we didn’t actually spend that much more.

But it just made us so much happier realising that we could, for example, and so, yeah, I mean, all of a sudden, when you get to that point where you could buy that wreath, or that decoration is just going to feel like you know, we could do that. And if you counted up the money at the end of the year, like the year after you’re mortgage free how much more money you spend on that, you’d be like, oh, we didn’t actually spend that much more on it, but it made us that much happier to be able to do so.

Ryan
I think it is time for us to start the debate and make a lot of listeners mad, maybe make a lot of listeners happy and I want each of us to actually share where we side on this type of debate.

The debate that we are discussing is: should you pay off your mortgage first? Or should you be investing your money instead? So do you go with what your gut says? Do you? Do you have the fear of missing out when it comes to investing?

You know, we’re looking at these amazing stock market gains and having this historic bull run over and over and over again. So mortgage rates are so low, and there’s all these points on either side. And money is mostly behavioural and you should, you should just be happy and you should get value of what you spend on and debt reduction makes sense?

I think it is a very exhausting debate. But I just want to take a few minutes for each of us quickly to say what side we’re on and why. And Maria, because we’re focusing on your story today. I would like to start with you.

Maria
Great. I am so torn now that we have a mortgage again, I don’t know because we’re a bit more knowledgeable in the markets and things like this. But I think it’s going to go back I know we’re going to go back to our gut and what we know and we’re going to pay off this mortgage.

I just know that that is the thing because yes, the markets could go up but the markets could also go down. And long term, they’re going to try dap and all that. I’ve heard that before. But I know that I can put money into this mortgage and will save money, every dollar I put, it’s going to save me some interest. And it’s going to knock down those years and just getting to that point of being mortgage-free and that feeling of just having so much more options.

Because now we have more cash flow, we have options if one of us doesn’t want to work or goes down to part time. It’s a lot more open ended versus having money in the market where it’s more abstract. Yes, there’s money there, but where is it and how do I get it? It’s not as liquid and things like that at the end of the day, so I’m definitely on the pay off your mortgage camp, I think.

Ryan
All right, Chrissy?

Chrissy
I am I don’t have a clear-cut answer because the early years of our mortgage, we were in the 5.5 percent range of interest rate. And so it was easier to and I also didn’t know about leveraged investing or any kind of investing really. I was just doing the bare minimum. So for us, we were really focused on paying down our mortgage at that time.

Knowing what I know now, at those interest rates, I’m still not sure I would focus as much on investing as I do now. But now I am fully in the, you know, I’ve leveraged our equity in our house to invest it. So I’ve seen both sides of the equation, and I can’t say one is right or wrong, it really depends on what your situation is and how you’re feeling at the time.

Ryan
I’m gonna have to agree with you there because I think your answer sounds a little frustrating for people who want like a yes or no, but to be honest, it’s not a yes or no answer. You kind of have to look inside your feelings in your own gut and just go with what you want. Because there are people who particularly come from a debt background, something like Dave Ramsey, where they follow the baby steps and they’re trying to get out of debt and they only spend in cash.

You’re never going to convince them to put let the debt ride and invest in the stock market. It’s just not going to happen. They’ll be completely torn. And so my answer is basically do what you want. And I think that’s as frustrating as your answer, Chrissy because it’s true though, like you have to really just go with what you think is right now with the math tells you because money is behavioural, it is 100% behavioural.

You can hope for the best stock market return of all time with one investment but it doesn’t make sense to invest once a year you have to invest every single paycheck, you have to invest every single time money is presented to you. That type of behaviour will make you rich. It’s not the math, it’s the behaviour.

The math is kind of, you know, the sidekick of behaviour, right? Like the math will always agree with you. And I know in Quit Like a Millionaire by Millennial Revolution, they say, as a rule of thumb, they say 4% so if your mortgage is under 4%, you should be investing and if it’s above 4%, you should be paying it off.

I think that works for some people. And I guess that’s kind of like a line in the sand if you want to use that rule of thumb, then I say go for it. But if you’re really torn on this, just do what you think is better, because a lot of the times they will invest when they know they want to pay off their mortgage, and then they’ll be tossing and turning at night. And they will always have this doubt in their mind at all times if they should be paying off their mortgage or not. Just pay it off if it worries you that much.

Maria
I think it’s a really good point, Ryan, that it is so behavioural. I know for me, now I’m crunching the numbers and I’m like, I go to my husband. I said, well, we could do this and look at the markets if he goes, Yeah, that’s great. But we know how to do this. And this is what makes us comfortable. And it’s a behavioural thing.

So I mean, maybe it changes and how we adapt to the next few years, I don’t know we’ll see. But it is 100% behavioural and you have to go with what you feel comfortable with and what’s going to make you sleep at night. Like no matter what the math says, either one, I don’t think you’re going to lose on, right?

Either one, you’re, you know, you’re investing or you’re paying down debt or whatever. In this regard. I mean, obviously, credit card debt is something different. But whether you invest in your mortgage or invest in the stock market, you’re not going to go wrong. I think both are going in the right direction. You’re saving money. You’re getting ahead. You’re growing your net worth whatever that may be. Both, you can’t go wrong.

Ryan
It’s really such a champagne problem, isn’t it? Like when you think about it, because it’s kind of like I have all this money, I have this stable disposable income or what have you, and I want to deploy it so I can make myself richer. Do I want to be this rich by going through door number one? Or do I want to be this rich by going through door number two, when there’s only two doors to pick.

So you don’t have to worry so much, you’re gonna be rich, just chill. You know, like, it doesn’t matter if you step through either door. I mean, if you really want, you could just go 50% you can say, okay, half of my money, I would be investing in the stock market will instead go towards debt repayment, you know, bam, you could just do it like that. Nothing else.

Like that could work for you. It really doesn’t matter. It ultimately just matters. Whatever you want to do, just do it. Going with the math is still a behavioural choice, because you’re going to be investing regularly. So no matter why you’re going to be doing something that’s right. That’s the that’s my position on it. And it kind of sucks because I wish there was like a very like easy answer. Like pay off your credit cards at all time. That’s very easy. No one has ever debated that in the history of FI.

Chrissy
I know you’re saying that it’s frustrating for our listeners to hear this. But at the same time, I think us just discussing this helps people to really dig down and look inside themselves and decide, what is it I want out of this whole decision?

You know, they really have to think about what they value, is it peace of mind? Or is it getting the maximum gain from their money? Each of us has to really do some soul searching to decide on that and I think our discussion will help prompt people to look at all sides of the debate and and really decide what’s best in their situation for them and if they have a partner to involve their partner too because that for both of us, Ryan, it that’s a huge part of making this decision. I mean, my husband was on board with the leveraged investing whereas your wife was not and that plays into it a lot too.

Ryan
It does. It definitely does and for the past three years. So I got my mortgage with RBC in 2016. That was the first time I’ve ever bought a home, I use the Homebuyers Plan for my RRSP. We didn’t have really any objectives to invest in the stock market, we kind of pulled out all their money from investments and put it into the home.

And like Maria was saying at the beginning of her story, it’s kind of addictive to start paying it off and you start gamifying it and we had the same thing. Whenever you make a prepayment to RBC, they send you. For whatever reason, they can’t, they can’t stop this, like it’s just not in their system for some reason.

They send you in letter format your updated terms, because you’ve basically changed the original contract or whatever, because now your principal is different. So they have to recalculate everything and tell you the actual interest. And so when you double up every single week, like I’m doing, and you’re making these payments, they keep sending you every single week, stupid letters saying here’s a new principal amount because I kept changing the contract essentially.

But I was doing it with penalty free so it didn’t really matter. But getting these things and my wife would see it and she’d say, oh my gosh, like, look like we just knocked the year off in like three months or something or in like one month of payments like that. That’s all it took. Because when you front load so much of the principal, the interest becomes miniscule.

And then the amount of years you have to pay off the mortgage shrinks rapidly. And then it does turn into a game and you’re like, can we do more? Like, why would I put money into the TFSA? When I can get more happy little envelopes arriving in my mailbox? It’s, it’s addictive.

Maria
Well, and one thing with that addiction is that you’re always whenever you pay off, you’re getting hit, right? Yes, I could put that money in the stock market. But then all of a sudden, if the stock market goes down one day and you check your statement, you’re like, oh, gosh, we just lost, you know, whatever it was we lost, we’re with the mortgage, you’re never losing, right?

You’re just it’s like it’s constant gains, the psychology there really plays into effect. And so I think the big thing is, whatever you choose, investing mortgage, whatever, it’s just don’t get hung up in this analysis paralysis, right? Like, make a decision and just keep making that progress. And whatever it is, then you’re going to see the benefit of that.

Chrissy
It also is important for each of us keep in mind that this doesn’t have to be a permanent decision, you know, we always try one method or one choice, where it’s to focus solely on the mortgage, and we can revisit that at any time, as long as we’re making our obligatory payments, we can always hold back and not go full force into paying down the mortgage quickly. We can always go back to, you know, balancing it with our investments or, you know, take slowing it right down and then focusing more on the investing side of things.

Maria
Absolutely.

Chrissy
Yeah, it’s not 100% black or white, you’re fully committed decision. You can always revisit.

Ryan
You know, hindsight is always 2020. Right. So a lot of people when they bring up this debate right now, they look at the historic bull market that’s happening. The US market, you know, averaging 12%, or something since the financial recession in 2008 and nine. I mean, yeah, obviously, duh. Now, the math makes sense. And everybody would pick that if they could do that. But you can’t you can’t predict the future. We have no idea what the 20s are gonna look like.

So for example, if someone is taking the journey of paying off their mortgage, and let’s say there’s a massive financial correction in 2024, and they paid off their mortgage, the month that correction happened, and then they start investing into their TFSA and buying a broad market, you know, index fund, like, they’re laughing at you, because throughout this entire time, up until 2024, you made zero percent.

Let’s just say that’s what happened to your investment, right? Let’s say literally corrected, and you’ve made absolutely zero money to show for it between now and 2024. Whereas the person who was paying off their mortgage at a 4% interest rate now has a guaranteed 4% of rate of return, right?

And then you’re going, aww, it’s a crappy way to think about it. I’m really both of you made good decisions. It’s just very easy to cherry pick the right one when you have the crystal ball in front of you. And you can see what happened in the past, right? So I that’s and that’s the part of the debate that I think that everybody gets really tied up in and when people lean towards the math, they’re really looking at the last five or 10 years, you know, this historic bull run that the US market has had, you know?

That’s very convenient to look at that and only factor that. But if you were to look at the decade before from the dotcom bust to the Great Recession, the US market, I believe it was the S&P 500. Don’t Lynch me listeners if I got that wrong, but it was the S&P 500 that returns zero during that time. So anybody who was paying off their mortgage easily came out ahead, right. So, when you cherry pick that, the math will always look better, or the math will always look way worse, but I think they’re both sound financial decisions.

Chrissy
Something I advocate for when people are confused about this decision, you know, RRSPs, TFSAs versus mortgage is do both. You know, then it’s like dollar cost averaging, make your mortgage payments, but maybe don’t pay extra if you don’t have it, use it towards your RRSP and then whatever tax refunds you get, then use it as a payment towards your mortgage.

And also, of course, take advantage of matches that you might have. So maximise that to get your employer’s matches and you know, then you’re getting the best of everything and you’re not stretching yourself too thin. And for us it was a very comfortable way to keep on top of our RRSPs and make sure we’re still investing, as well as being able to afford a mortgage and feel good about being able to pay it down a little faster.

Maria
Well, I think that’s also important too, is that you don’t have to put all of it on it, right? Like maybe you get all of a sudden this influx of, you know, $500, or bonus at work, maybe that’s the only extra thing you put on your mortgage or whatever that may be.

It doesn’t have to be an all or none. It can be even this extra little bit, right, like, Ryan, you talked about increasing your payment by 10%. It might not seem like a lot, but that 10% could shave a year or two off your mortgage at the other end, right? So just don’t think you have to be this big grandiose thing every little bit. Whatever you can do or, you know feel comfortable with is going to help in the long run as well.

Ryan
I think if someone were to come to me with their numbers and say listen, I want to know if I’m doing this right or wrong and and they had chosen the prepayment options. You know, they could fulfil most of them, but they also wanted to contribute to their RRSP and their TFSA. Like that, to me would be perfect.

I think if I were to look back at everything hindsight, 2020 being as it is, and well, I guess not 100% because I know I would never pay off my mortgage, I’d be investing in the stock market. But if you were to just present me with these numbers and say, going forward the future because I know it’s uncertain, I don’t know what’s going to happen. I want to fill up my tax advantage accounts, and then begin prepaying my mortgage. To me, that is probably the best answer that you could come up with. I feel like that satisfies both, the behaviour and the math.

Maria
Absolutely.

Chrissy
So I think we’ve done a good job of tackling that. We may not have given a straightforward answer, but I think we gave our listeners a lot to think about and you know, many different ways to look at the situation. So we have a bit of time left. I was wondering if we could get into, so you were mortgage free but now you have nine rental properties. So clearly you are not mortgage free now.

Maria
No, not at all.

Chrissy
So how are you balancing that? Because it’s nine properties now that you’re carrying. Or is it 10 properties, including your primary residence? Do they all have mortgages?

Maria
Yeah, it’s 10, including our primary residence and they are all currently mortgaged. Yep.

Chrissy
Okay, so how are you balancing that coming from being completely mortgage free to this?

Maria
So after we became mortgage free, one of the levers we pulled was we got a HELOC, so a home equity line of credit on to our primary mortgage. And we use that to put down payments. So now we’re using this leverage investing to put down payments on a properties.

And so even though we have these rental properties, and we have like 10 mortgages, in my mind, it’s just the primary residence has the mortgage because all of our rental properties, all cash flow. They all pay for themselves. They’re all making money every month on top of paying all the expenses. So to me, that’s like, okay, that’s the business side of things.

And the personal side is okay, we have this one mortgage that we want to attack and things like that. So we’re not drawing any money off of our rental properties, all that money kind of goes back into it, and kind of sustains itself and pays for itself eventually.

I mean, in a perfect world, all those mortgages are paid off, and we’re generating all this income and we’re not working. And, you know, we’re footloose and fancy free sort of thing. But we’re not at that point yet. So it’s it kind of yeah in my mind, it’s almost like these two entities. Because I know again, worst case scenario, if something goes wrong, well, we have equity and all of those rental properties.

So if we had to liquidate our whole portfolio tomorrow, we would not be losing any money. And so you know, who knows how much ahead we would come out. We’d probably come out still pretty good, but we would never lose money in those investments. So that’s again, even if we’re just still back to zero where we are, well, that’s okay kind of thing. So we’re not losing the roof over our home or anything like that.

Chrissy
And psychologically, how are you handling this? Because it sounds like you gain a lot of benefit from the psychological peace of knowing that you had no mortgage. So how do you now balance that when you have 10 mortgages?

Maria
Again, I think again, in my mind, it’s almost like it’s very kind of segmented. So in my mind, we have one mortgage on our property, because all of our properties, all of our rental properties are fully tenanted. If we have a vacancy, then it becomes a little bit more, then we got to get a little bit more worried. And there’s a little bit more psychological play.

But as long as those tenants are in there, we have great tenants, they’re paying the rent every month, all of a sudden, it’s like, well, we’re still gaining every month, right? We do that net worth statement a few times a year, and we’re still going up and up because they’re paying off those mortgages. So it’s only when those properties are vacant, that we become very apprehensive.

But other than that, as long as they’re full. And realistically, in my mind, it’s that segment, we only have that one mortgage on our property because the rest is you know, good leverage or debt or whatever you want to call it kind of thing.

Chrissy
That’s so interesting. Thank you for clarifying. That makes so much sense to me now, because I also think of our leveraged investing, we don’t use it for real estate, we use it to invest in the stock market, but I also think of it that way. It just feels different to me than a regular mortgage on our primary residence.

Maria
Yeah. It just yeah, it’s something it’s so funny because when you calculate the numbers, we’re like, oh my gosh, we’re over $2 million in debt. It’s like, oh, that’s okay. You know, it doesn’t even affect us. It does not affect my ability to sleep at night or anything, like that kind of thing. So, which I know some people it would, but it’s free. It’s just yeah, it’s like, well, no, our house right now is not making any money, right? Like, that’s the liability. It’s not a money making asset to our primary residence. That’s the mortgage that we’re worried about.

Ryan
But, you know, you brought up our probably our favourite topic to talk about, which is the Smith Manoeuvre and you’re, you’re taking a tax deductible loan from you’re using the equity in your home to buy investments. And that’s a very, very, very profitable strategy for Canadians to use. So that that’s how you bought your first home. I’m curious now because when you bought your first home, did you only withdraw the amount you needed for 20% of the rental unit, or did you withdraw more than that?

Maria
Well, we had the HELOC for the full 60% but we only withdrew what we needed for the downpayment. We actually, so the year after we b paid off our mortgage, we actually bought four rental properties that next year because we had enough cash. So then all of a sudden, because we didn’t have a mortgage

Ryan
You’re just swimming in it. Are you Scrooge McDuck?

Maria
No, because we had we had you got to think you had this mortgage right? So now all of a sudden we have no mortgage. So you took this home equity line of credit, right? Because now you take 60% of whatever your house costs and you can, you know, send you have this influx of cash.

So we would put, we use that and all of a sudden, then what are our old what would be our mortgage payment, whatever we’re putting towards our mortgage now we put towards our paying off our home equity line of credit kind of thing. And just yeah, it was like a Smith Manoeuvre at that point kind of thing. But yeah, it was a very steep learning curve buying four properties in one year for sure.

Chrissy
It also helps that you live in Edmonton.

Maria
Yes.

Chrissy
When I was doing research, yeah, Edmonton is a good market to buy in even right now.

Maria
Yes.

Chrissy
It’s just really good cash flow and you know, property prices are reasonable and you know, the I guess the vacancy rates are also quite low. So it’s all working in your favour.

Maria
Absolutely. And if it wasn’t, I mean, we wouldn’t be doing this. I mean, we know tons of people but like a lot of people from Vancouver are investing in Edmonton because what you can buy, I mean, what we bought our house for three bedroom house. We’ve got a suite in our basement. I mean, friends of ours in Vancouver can buy a two bedroom condo for that. Right. So it’s it also depends on where you are. Right? So you’re right. Edmonton is very, it’s very, it’s as far as anywhere in Alberta. It’s definitely the best real estate friendly for sure. For investments.

Ryan
Is this because like so you say that the market is good there is that have to do with the oil correction that happened? Why are the prices so good in Edmonton?

Maria
Well, Alberta has always been fairly strong just because the like the wage, the average weekly earnings is really high sort of thing compared to the price of property. So your tenants can afford those higher rents and things like that.

But Edmonton was also insulated a little bit from the crash because we’re a government town, right? And there’s a lot of infrastructure going on. So when the oil crashed and Calgary was highly affected. Edmonton wasn’t as affected because they were still building the new arena. And there’s a lot of infrastructure going in. And there’s a lot of government jobs here that were not as affected from the oil, you know, boom and bust at that point.

Ryan
Wow. I love Alberta. I miss living there. I want to go back. I didn’t miss the negative 40 in Edmonton. I was posted to CFB Edmonton for a year and a half of my military career. So I know Edmonton a little bit but I absolutely loved Alberta and I’d go back but ‘Onterrible’ is pretty good too. Sorry. I mean, Ontario. killed by my own residence. For sure. I think Chrissy it’s time for our signature questions to end this podcast.

Chrissy
So Maria, we always end our episodes with our three signature questions, and I usually go first. And my question is, are you team FI or team FIRE?

Maria
Absolutely. Team FI. I don’t know. The whole you know, sitting on a beach retiring, I think we’ll definitely be so called, quote unquote, retired early, but I don’t think I don’t think we’ll ever stop working in some capacity doing something, whether it be volunteering or something. But I think team FI.

Ryan
Man, we had a good string of guests that are really all about FIRE. So you just squash that completely.

Chrissy
Awesome. So the next question is usually Money Mechanic who asks it and he likes to ask our guests, what’s something you DIY, whether it’s on your house or on your car?

Maria
Well, so growing up my dad is he will rebuild like hot rods. That was his hobby. And so my very first vehicle was a hot rod. And I did all the work on it. And I learned how to do all the oil changes and everything. And I still to this day, do my own oil changes on it. So I’m going to go with that.

Chrissy
Amazing.

Ryan
Nice. That’s a good one. Cool. All right. Well, the last question is by far the most important for this podcast. We are running a Canadian operation here so I need to know when you Go through Tim Hortons. What do you order?

Maria
Oh, it’s gonna sound really un-Canadian but I’m not really a big Tim Hortons person. I don’t drink coffee or any form of caffeine and we follow a pretty gluten free diet. So it’s not really they’re not really user friendly. But before I went gluten free, I’d have to say it would be crawler donut for sure.

Ryan
The craw, oh, you mean the crueller?

Maria
Yeah, sorry, crueller crawler.

Ryan
There’s like what the crawler? Yeah, the tractor tire. Yeah, yeah. Yeah.

Chrissy
Yummy.

Ryan
Delicious. I’m gonna have to change up this question because it’s just becoming one of those things where people are like, ah, this is a you know, like, forget about it being un-Canadian. It’s just unhealthy, right?

Maria
Yeah.

Ryan
I mean, I honestly don’t go through Tim Hortons. I don’t know why I asked this question. I should probably change it to something better, like, visiting places. Let’s do that. Maria. Okay, bonus fourth question. Okay, where do you like to travel in Canada. Or would you like to travel?

Maria
One of our favourite easy places to go is Vancouver of all things because for us, it’s an hour long flight. And it feels so because you’re on the ocean and feels very exotic compared to Edmonton, and it’s just like you feel like you get away. But it’s I mean, still Canadian dollar and it’s close and yeah, Vancouver’s I mean, we could just go to Vancouver for the weekend sometimes. Before we had kids we would do that. But yeah, absolutely. That would be our easy go to place.

Ryan
I haven’t met anybody I like from Vancouver, though.

Chrissy
Yeah, I know.

Ryan
Oh, woops! Chrissy!

Maria
Just kidding!

Ryan
Awesome. Well, thank you so much for coming on the podcast and sharing a bit of your story and tackling the never ending debate of mortgage versus investments.

Maria
I’m happy to be here. So thanks and keep doing what you guys are doing.

Chrissy
Yeah, before we close off, can you tell our listeners where they can find you online?

Maria
Absolutely. So I blog over at handfulofthoughts.com. And there you can find my Instagram, Twitter, Pinterest, all that stuff. Reach out. Definitely send me an email and let’s try to connect. Absolutely.

Chrissy
Thank you Maria.

Maria
Thank you.

Transcribed by Otter.ai

Outro
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