A mortgage allows you to repay debt and invest for your future at the same time
Lesley Scorgie
Sun
Are you wavering on the fence of “to buy or not to buy?”
Maybe this will persuade you to convert to the “to buy” side of the argument.
From an investment perspective, if you rent over the course of your independent lifetime — about 50 years — at a payment of $1,000 per month, you will have spent $600,000 on rental payments and gained nothing.
This doesn’t even account for inflation.
If you paid that same monthly payment towards a mortgage rather than your landlord’s retirement fund, in 25 years you will own your home and never have to make another monthly payment.
Throughout those 25 years, your home will also appreciate in value and you don’t have to do anything but maintain it to realize that appreciation. With the exception of years 1981 to ’82 and 1990 to ’92, Canadian house prices have risen steadily over the course of 50 years.
With that being said, real estate is a surefire way to secure some of your hard-earned cash in a lucrative investment.
Over the course of four years, I’ve managed to save enough money as a down payment for a small townhome in Calgary.
I’ve been away studying marketing and finance at the University of Alberta throughout those years, and now, as I return to Calgary anticipating a successful new beginning as a young professional woman, I stare straight into the tunnel of debt. I’ve committed myself to a mortgage, a car and a few lingering mementos of my life as a student (a student line of credit).
How could a girl on track to be a millionaire by age 25 wind up in such a pit of debt?
One fact about Canadian life is that debt is a part our lifestyle.
You can’t really escape from it, seeing as our Canadian dream consists of a house, a car and 2.5 children (by the way, to raise and educate one child costs nearly $300,000).
One loan seems to roll right into another, so by the time you finish paying off a vehicle, it may be on its last legs — and another car is in order. So, after acknowledging that debt is a part of life, there is only one way to survive: You’ve got to hop the bull and ride it out as best you can.
The second fact about managing your money is that balancing is the key.
Forcing yourself into a monthly savings plan will ensure that by the time you’re waving the flag of debt-free freedom, you’ll also have some positive numbers on your balance sheet.
To put this more simply, if you want something to show for your disciplined efforts over the years, save throughout the years at the same time you pay off your debts.
If you find it exceptionally hard to save your money, owning a home forces you into savings habits very quickly. This is because as you make a monthly mortgage payment, some of it goes towards interest and some towards principle. When it comes time to realize the value of your home, the equity that you’ve paid into your home is like cash.
An even handier way to ensure more of your payment goes toward equity is by setting up an automatic bi-weekly payment (author David Bach supports this approach with his latest book, Automatic Millionaire). The secret of a bi-weekly payment is that you actually squeeze in two extra payments per year.
Another benefit of a bi-weekly payment is that you can pay your mortgage off in a shorter period of time.
Those two extra payments per year really help. You end up being out of debt faster and have a wonderful nest egg after 20 years.
© The Vancouver Sun 2005
