Hello to all! We have a real estate expert here from condotrend.com, to teach you how to manage your money and build your wealth.
In this article, we’ll talk about the eternal question of whether you should pay off your downtown Toronto condos early or invest the difference. The idea of having decades of debt hanging over our heads in the form of a mortgage can scare us. So it’s only natural to want to pay off that mortgage as soon as possible. But is that the best financial decision you can make?
Today, we’re going to talk about the emotional aspect of this decision, the mathematical aspect of this decision, and some of the advantages and disadvantages.
The answer to this question is simple, it’s all about math. If you can earn from an investment an after-tax adjusted return that is higher than the interest rate on your mortgage, then it makes perfect sense to invest rather than pay off your mortgage early. So if you are earning 6% per year in interest and your mortgage rate is 2.5%, it makes perfect sense to choose the first investment. This makes you a 3.5% return on your investment.
Click here to know more: Pay off Your Downtown Toronto Apartment early or invest? Interest rates perspective
Let’s talk about the upfront payment monthly versus the investment. Let’s take the same example: $200,000 mortgage at 2.5% over 30 years. Let’s assume that this couple eventually works overtime, starts selling products, or manages to generate $2,000 more each month to pay off the mortgage early, or that they invest that $2,000 each month. If they did this, they would save $16,835 in interest on their mortgage because they would have paid it off very quickly. (More than 6.58 years).
Now, if they had borrowed the additional $2,000 at the 6% interest rate mentioned, they would have earned $84,487 in interest, and this amount would have brought the total balance to $186,911. This example ends after 6.58 years because the loan would then be paid off by the additional payments they make. So the balance ($186,911) is $18,955 higher than the balance of the loan at that point. So this is a smarter mathematical decision and an apples-to-apples comparison.
Click here to know more: Pay off Your Downtown Toronto Apartment early or invest? The upfront payment monthly vs The investment
If we logically break this question down into pros and cons, let’s see if we weigh more on one side of this argument or the other.
So the first is to reduce the total amount of interest you pay over the life of the mortgage. Remember, in our previous example, when we paid off our mortgage in 6.5 years instead of 30 years, because we were paying $2,000 more per month, we were paying less interest over the life of the loan.
Second, you free up your cash for other things in life, such as investments, travel, and savings for emergencies. It increases the amount of cash you have because you no longer have to pay the principal and interest or pay off a mortgage.
Third, you own your home. When you own your home, you are happy. That means peace of mind and less stress. You don’t have to make decisions, make deals, work overtime, or do certain things because you own your home.
And finally, it increases your credit for ten years. So it’s not a severe blow to your credit score, but it does have a good impact on your credit score for ten years.
Let’s talk about some of these disadvantages.
The first, of course, is the low-interest rate now. Mathematically, it doesn’t make sense to pay off your house now.
The second is that you may lose some tax breaks. You have to itemize the interest now, but if you do that, you can deduct the interest payments from your taxes, lowering your taxable income.
The third point is opportunity cost. For example, if a good deal or investment opportunity comes up and you just don’t have the cash because you used every extra penny to pay off your mortgage earlier than you planned instead of investing it, the opportunity cost is huge.
Finally, you have equity in your home. Equity is the value of your home minus what you owe on it. So if you owe nothing, all of your equity is buried in your home. You can get it through a HELOC, a loan on the net property value, or something similar. However, in most cases, once you pay off your house, it’s not like you have cash in the bank, it’s buried in the walls of your house.
Click here to know more: Pay off Your Downtown Toronto Apartment early or invest? Pros and Cons
Downtown Toronto Condos for Sale
Langstaff Gateway Condos is located at the intersection of Bayview Avenue and Langstaff Road East, with an excellent public transport links score. The condos are only a five minute walk from Langstaff GO Station and there are several bus routes to choose from. They are close to Toronto’s major highways 404 and 407, giving you quick access to other cities in the Greater Toronto Area and downtown Toronto. These condos in Toronto feature excellent educational resources, from early childhood centers to post-secondary institutions, with the prestigious Seneca College and York University just minutes away.
Located in the heart of Regent Park, Leftbank Condos is a high-end, high-rise condominium development, built by Toronto’s renowned IBI Group at 83 River St. Leftbank Condos is a 34-storey building with a mix of 385 one-, two- and three-bedroom units with an expected occupancy date of 2024. Leftbank Condos has excellent civic facilities with a large sports center with a new gym, basketball court, hockey and swimming pool, as well as a 60,000 sq ft arts and cultural center. The development is also very well connected with a transport score of 90/100, with Dundas and Queen tram stops within walking distance, and the city center 10 minutes away.