10 Benefits of a Paid-off Mortgage In Canada

Paying off your mortgage early can free up a ton of financial opportunities.

A paid-off mortgage. It’s a common goal for many homeowners, and for good reason. A paid-off house means no more mortgage payments and, in some cases, reduced or eliminated insurance premiums. But there are many other benefits of a paid-off house that often go overlooked.

While some people believe that it is a waste of money to pay off a mortgage because the interest rates are so low. While this may be true, there are several other benefits to paying off your house that you may not have considered.

Mortgages make up the most common type of personal debt in Canada. Why? Well, when you take out a mortgage to buy your home and finance (up to 95%) of its price with interest payments on loan principal alone.

Having your home paid off can be a major stepping stone on your financial wellness journey, and can propel you to a different level of wealth. 

Paying Off Your Mortgage & Travel

Paying off your mortgage and indulging in travel can unlock a world of financial freedom and personal fulfillment. Imagine the sheer relief of waving goodbye to monthly mortgage payments—the stress and weight lifted off your shoulders. With your home officially yours, you gain a sense of security and peace of mind.

The financial benefits are substantial, as you redirect those once earmarked mortgage funds towards experiences, investments, or simply padding your savings. No more interest accruals, no looming debt—just a clear financial slate.

Now, let’s talk travel. Picture this: exploring new landscapes, embracing different cultures, and creating memories that last a lifetime. With a mortgage off your plate, your budget opens up, allowing you to embark on adventures you may have only dreamed of before.

Whether it’s wandering through historic European cities, lounging on tropical beaches, or trekking through exotic landscapes, your options become virtually limitless. Traveling provides not just relaxation and joy but also invaluable experiences that broaden your perspective and enrich your life.

Moreover, paying off your mortgage can serve as a springboard for a more flexible lifestyle. Perhaps you’ve dreamt of becoming a digital nomad, working remotely while soaking up the sun in distant locales.

Without the weight of mortgage obligations, such aspirations become more attainable. The combination of a paid-off mortgage and travel isn’t just about financial freedom; it’s about embracing a life where your resources align with your passions and desires.

It’s about creating a narrative filled with adventure, exploration, and the satisfaction of truly owning your time and choices. So, as you make that last mortgage payment, envision the world that awaits you, and start planning the adventures that will color your post-mortgage life.

When You Should Focus on Paying off Your Home 

Should I pay off my home or invest? This is a common question you see on a lot of personal finance blogs, or YouTube. As with most answers in the personal finance space, IT’S ENTIRELY PERSONAL. 

There are however a few things to keep in mind when making that decision:

The market returns are hovering around 7% right now, and mortgage interest rates are just below that. For that reason, mathematically, it makes more sense to invest your money before paying off your mortgage. 

There are several tax-sheltered investment accounts that you can leverage to help grow your wealth: 

• You can use an RRSP to help save for your retirement (you should be putting away ~15% of your income towards retirement)
• You can use a Tax Free Savings Account to help save for large purchases like a car, or house renovation 
• A Registered Education Savings Plan can be used to help save for your child’s education. 

For many Canadians, simply investing in their tax-sheltered accounts will take up 100% of their disposable income. If you’re in this situation, making the monthly mortgage payments is the best option. 

However, there may come a point in your life where your annual income puts you in a place where you’ve exhausted the tax-sheltered accounts. You also may be in a place where you need a lump sum of money. 

In that case, you’ll be asking the question, do I pay off my mortgage, or do I invest?

The answer is………..it’s entirely up to you. Personal Finance is personal.

In this blog post, we’ll be covering the pros of paying off your mortgage early, and how doing so can put you in a great place financially. 

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Here are 10 Positives to Having Your Mortgage Paid off

1. Financial Security During Market Downturns 

Homeowners are always on edge when the economy takes a turn for the worse. A major concern of many homeowners, especially if they remember how things were during The Great Recession of ’08 is whether or not mortgage rates will stay below the gains of the stock market. 

If mortgage rates were to spike to 7%, many homeowners would be in hot water. Those with a paid-off house can rest easy during these ties. 

Having a paid-off house can also be of assistance if you were to lose your job during an economic recession. If you find yourself in need of cash, you’ll be able to give your emergency fund a longer runway if your mortgage is paid off (since you have thousands of dollars leaving your chequing account every month). 

2. Saves You Money on Interest

You may be able to save yourself a lot of money by paying off your mortgage earlier. If you reduce the amount of payments made over the loan, the less interest you’ll need to pay. 

Assuming you can get your mortgage paid off quickly, this could equate to thousands of dollars saved on interest payments over the mortgage. 

For example, let’s say you have a $300,000 mortgage with an interest rate of 2.5% and a 30-year amortization period.

If you choose to pay an EXTRA $2,500 per month towards that mortgage payment, you’ll be saving $29,000 over the mortgage simply by reducing the interest rate. In addition to that, the mortgage would be paid off in 7.5 years as opposed to the projected 30.

3. Paying off Your Mortgage Early Will Lower Monthly Expenses

There are many reasons to pay off your house before retirement If you’re like most people, at some point in life there will be a decrease of income (AKA retirement). Making sure your house is paid off before retirement can help limit stress during your “golden years.”

But there are also benefits to having your house paid off during your working years. 

By taking care of your mortgage, you can free up cash that can then be invested. This will provide far more opportunities for financial gain – everything from quitting your job and starting your own business to diving into the world of alternative investments. Or, you can simply invest in the stock market and retire earlier. 

4. Paying off Your Mortgage Early can Reduce Stress

Over your life, you will deal with unfortunate circumstances. It’s unavoidable. These circumstances may result in a hefty bill. You may find yourself with unforeseen medical expenses, or an auto repair bill that was unexpected. 

The economy is in turmoil, and the job security people had two years ago, may not be there anymore. There will be times in your life when you need access to lump sums of money. 

Having a pool of money set aside for these financial hardships ensures that you don’t fall into debt. This lump sum of money is commonly called an “emergency fund.” 

Your emergency fund is a pool of money separate from your everyday chequing account and from your investments. In an ideal world, you’d never touch this pile of money. But as we all know…..sh*t happens.

The top financial advisors in the country recommend putting 3-6 month’s worth of expenses in your emergency fund.

Having your mortgage paid off is like a supercharged emergency fund. 

For some people, having their mortgage paid off acts as their safety net. They can sleep better knowing that if anything happens to them or their job gets cut, there will still be a roof over your head. Once your mortgage is paid off there is much less to worry about. 

5. Increased Net Worth 

Your net worth statement is like a financial report card that provides you with an accurate picture of where your finances stand at this point in time and can help make progress toward reaching any goals.

Your house is one of the most valuable assets you have. The more equity you have in a home, the higher your net worth is. 

When you determine your net worth, you must subtract your liabilities, and part of that is your net worth. If you have a house valued at $500,000, and your outstanding mortgage is $400,000, you only have $100,000 in terms of assets. 

6. Freedom to Pursue Other Things

Many of us have dreams of doing something other than our current 9-5. By paying off your mortgage, Canadians can use the excess income to fund alternative financial dreams (such as starting a new business). 

Sometimes these “side hustles” can grow into full-time income that vastly surpasses your current wage. These side hustles not only can provide a financial boost, but can also provide the scheduling freedom that many of us Canadians desire. 

7. It Allows you to be More Charitable

Giving back is a huge part of your journey to financial wellness, but sometimes we have trouble giving to others when you sleeping under a mountain of debt. 

Being mortgage-free means that these people can be even more generous with their money. They were once limited by how much they could give, but now all of a sudden it is not an issue at all!

Being debt-free also gave them extra incentive to start supporting causes close to home or ones that are larger than life – like human rights organizations across Canada.

8. Paying off Your Mortgage Early Allows you to Explore the World of Rental Properties

There are several benefits to buying a rental property. For starters, you can enjoy the steady income stream that comes with renting out units. Additionally, you can build up your net worth over time as the value of the property increases. And finally, you can benefit from the tax breaks that come with owning rental property.

It can be tough to secure the capital to invest in a rental property if you’re paying thousands a month on a mortgage (you shouldn’t dip into retirement savings for this), and lenders may be hesitant to give a second mortgage to someone who still has many years left of their first home. 

Having a paid-off house can increase your cash flow, and make you more attractive to lenders. It’s an easy way to enter the rental property world. 

9. You Can Buy a Vacation Home

When most people think about buying a vacation property, they think about investing in a place where they can go to escape the rat race and relax.

There are a lot of reasons why people might want to buy a vacation property. Maybe they love spending time outdoors and want a place to go fishing or hiking in their free time. Or maybe they want to be able to travel more easily, and owning a vacation home near popular tourist destinations makes it easier for them to take holidays.

Whatever the reason, buying a vacation property can be a great investment. Not only will it give you somewhere to relax and escape the hustle and bustle of everyday life, but it can also generate income by being rented out when you’re not using it.

Having a paid-off mortgage can free up the finances for Canadians to buy that second home, and enjoy their golden years. 

10. Paying off Your Mortgage Early Sets a Great Example for Your Children

There is no greater financial milestone in a person’s life than paying off their mortgage. This is especially true if you are able to do it before your children reach adulthood. Paying off your mortgage sends a clear message to your kids that hard work and perseverance pay off. It also teaches them the importance of fiscal responsibility.

If you are able to pay off your mortgage, your children will be more likely to do the same when they reach adulthood. So, if you are looking for some extra motivation to pay off your mortgage, think about what it will mean for your children

Conclusion 

There’s nothing more satisfying than paying off your mortgage. From the reduced risk of a housing crash to the better sleeps you’ll get by knowing your house is paid off, paying off your mortgage can free up a ton of financial opportunity for Canadians. 

Paying off Your Mortgage Early FAQ

A) What are Some Ways I Can Pay off My Mortgage Early?

There are a number of strategies Canadians can leverage to pay off their mortgage faster including:

• Doubling your mortgage payments once every 6 months
• Make lump sum payments whenever you have excess cash
• Refinancing (in some cases)

B) Where Should I Save Money for Paying off my Mortgage?

Your monthly budget should be used to pay off your regular monthly expenses. You should also have an emergency fund to help cover the cost of unforeseen expenses. 

Aside from that, having your money continuously built up in your chequing account makes very little sense. 

If you need to save up money for your future purchases, you should leverage the tax-sheltered savings account offered by the GOC. 

Inflation is roughly 5%/year, and on average you can expect 6% year-over-year returns from the stock market (your TFSA). All this means that you are losing a great deal of money by having your money in your chequing account.

For that reason, saving up money in your Tax Free Savings Account (TFSA) for the purposes of paying off your mortgage is a great idea. 

The #1 benefit of the TFSA is that your savings can grow in an account tax free. Unlike an RRSP, the TFSA provides you with accessible money that you can use to fund your short-term financial goals. 

You can invest in stocks, bonds and real estate with your TFSA, and should allocate those investments based on your risk profile and your savings horizon (less risk if you intend to withdraw your funds in the near future). 

If you’re looking at opening up a TFSA, you should strongly consider Wealthsimple. Wealthsimple is Canada’s top Robo-Advisor, and can be a great alternative to expensive, cumbersome brick & motor banks. When saving up money for the purposes of paying off your mortgage, Wealthsimple can be a great tool.

Using Wealthsimple to Help Pay off Your Mortgage

With Wealthsimple, you can set your risk tolerance, and choose from a wide variety of accounts to grow your money

These accounts include: 

RRSP (Registered Retirement Savings Plan)	Great for savings for retirement, or your first home.  Reduce your taxable income by putting money in your RRSP
TFSA (Tax-Free Savings Account)	Have your money grow tax-free. Great to save for upcoming large purchases Withdraw anytime with no penalty
Personal
RESP (Registered Education Savings Plan)	Save for your kid’s education. Government will match 20% of your contributions up to $7,200
RRIF (Registered Retirement Income Fund)	Transfer your RRSP to an RRIF upon retirement.
LIRA (Locked-in Retirement Account)	Convert your pension to a LIRA
Joint	Shared access to investments/savings
Business	Standard business accounts that allow you to invest your income

Pros of Wealthsimple

Easy to Set-up

Create a Wealthsimple Invest account in just 5 minutes and you will be matched with one of three broad portfolio types based on your risk tolerance and investment timeline: conservative, balanced, or growth.

You will have the option to speak to an advisor during this process. 

Number of Account Choices

As mentioned above, you can easily open a number of investment accounts including an RRSP, TFSA RESP & LIRA (among others)

Low Management Fees

After easily setting up your Wealthsimple account, you can now start to benefit financially from taking advantage of Wealthsimple’s low management fees

Wealthsimple’s investment portfolio management fee is only 0.5% for basic accounts with less than $100,000 and slightly cheaper at 0.4% if you have more like $100k in your Wealthsimple account or higher (having >$100,000 in your account will give you “Wealthsimple Black” status)

Automatically Re-Balancing of Your Portfolio

If you’re actively investing, Re-balancing your portfolio can be a time consuming exercise, and disastrous financially if you do it improperly.

Wealthsimple is taking the stress out of investing with their automatic rebalancing. With Wealthsimple you never have to worry about when or how often your portfolio will be re-balanced.

The modern investor has enough on his/her plate without having to constantly monitor every asset in one’s investment account and make sure it stays perfectly aligned at all times. Their service takes away the need for a hands-on approach by dynamically monitoring portfolios according financial market changes, deposits/withdrawals, and swings in risk scores.

Great User Experience

Wealthsimple won a Webby Award for Best Financial Services Website. IT IS EXTREMELY EASY TO USE.

You can easily track your investment accounts that you have with the app or website, set up automatic transfers. It’s really sleek when compared to the big banks.

Both the website and application are easy to use for both first-time investors as well as seasoned veterans in investing who want to stay on top of what they’re doing with their investments every year.

Here is a detailed review of the user experience by Canadian Youtuber Brandon Beavis 

4 Tips to Help You on Your Financial Wellness Journey

1. Ensure you’re out of debt, and have an emergency fund before paying off your mortgage
2. Take advantage of the tax-sheltered accounts offered by the GOC before paying off your mortgage
3. If you’re choosing to pay off your mortgage, understand that you’re choosing to do this despite the fact you may receive better returns from investing in the market 
4. If you’re saving up money to pay off your mortgage, look at robo-advisors like Wealthsimple