Option 1: Pay off your mortgage early

Middle-aged couple sitting on house front door
goodluz / Shutterstock

Let’s make the math easy, and presume you're not buying in a major city that's experiencing record price appreciation:

  • You borrow $200,000 on a 25-year loan.
  • Your interest rate is level at 3%.
  • Your mortgage loan payment is $946.50 per month.

If you increase your mortgage payment by an extra $1,000 per month, using a mortgage calculator shows you'll pay off your mortgage in 10 years and save $52,738 in interest — that’s a big number.

Pros

Some of the benefits of paying off your mortgage can’t be measured financially — for some homeowners, it's about peace of mind. Paying off what's probably their biggest bill helps them sleep at night.

What's more, having a mortgage may make some people less comfortable taking on the financial risks that can come with investing.

Paying off your mortgage, or paying a lump sum at each five-year mortgage renewal cycle to lower your monthly payments, will also free up cash to tackle other debts. By eliminating or lowering the mortgage payment burden, you can shift cash toward credit card balances that come with sky-high interest rates, student loans or other bills you want to prioritize.

And, paying down your mortgage builds equity in your home — equity that could be tapped in the future if you're short on cash. Even if you already have a decent emergency fund, you never know what life will throw at you — 2020 is the greatest example of that.

Cons

Having equity is important, but be careful not to put so much toward your mortgage that you’re left with little real cash. Are you one of the thousands of Canadians who lost their jobs in 2020? It’s not easy to tap into your home equity without a steady income. There’s value in keeping a decent sum of cash in a high-yield savings account or other accounts to protect you from the unexpected.

Plus, you need to ask yourself whether putting so much money towards your mortgage will mean missing out on higher returns from other investments.

Join Masterworks to invest in works by Banksy, Picasso, Kaws, and more. Use our special link to skip the waitlist and join an exclusive community of art investors.

Skip waitlist

Option 2: Invest in the stock market

Business man holding phone
Bro Crock / Shutterstock

Let’s compare how much you can earn investing against the money you'd save by paying off your mortgage early.

  • Instead of adding $1,000 every month to your mortgage repayments, you invest that money for 10 years.
  • The long-term annual return rate on the S&P/TSX Composite Index was 9.3% per year between 1960 and 2020.
  • In total, you’d earn $193,453 before taxes, according to an investment returns calculator that factors in simple and compound interest rates, as well as the inflation rate.

Pros

According to the calculations, you’d earn $193,453 by investing, while saving only $52,738 in interest by paying off your mortgage early.

It’s a clear win financially, even before taking tax implications into consideration. If you invest that money in an RRSP, you can take advantage of significant tax sheltering.

Cons

If this was such an obvious choice, it wouldn’t be much of a debate, would it?

It really comes down to your tolerance for risk. Those average returns are just that, averages. Your return isn’t guaranteed and you could end up losing money investing in stocks or bonds. With a fixed-rate mortgage, you know exactly how much you’ll save in interest by paying it off early.

So weigh your options and choose the one that helps you sleep better, while providing the financial gains you're seeking.

Fine art as an investment

Stocks can be volatile, cryptos make big swings to either side, and even gold is not immune to the market’s ups and downs.

That’s why if you are looking for the ultimate hedge, it could be worthwhile to check out a real, but overlooked asset: fine art.

Contemporary artwork has outperformed the S&P 500 by a commanding 174% over the past 25 years, according to the Citi Global Art Market chart.

And it’s becoming a popular way to diversify because it’s a real physical asset with little correlation to the stock market.

On a scale of -1 to +1, with 0 representing no link at all, Citi found the correlation between contemporary art and the S&P 500 was just 0.12 during the past 25 years.

Earlier this year, Bank of America investment chief Michael Harnett singled out artwork as a sharp way to outperform over the next decade — due largely to the asset’s track record as an inflation hedge.

Investing in art by the likes of Banksy and Andy Warhol used to be an option only for the ultrarich. But with a new investing platform, you can invest in iconic artworks just like Jeff Bezos and Bill Gates do.

What's Next

About the Author

Ethan Rotberg

Ethan Rotberg

Former Reporter

Ethan Rotberg was formerly a staff reporter at MoneyWise, based in Toronto. His background includes nearly 15 years as a writer, editor, designer and communications professional. His work has appeared in the Toronto Star, CPA Canada and Metro, among others.

What to Read Next

Disclaimer

The content provided on MoneyWise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.