Friday, February 9

Should I try to be mortgage free?

This is one of those questions that puzzles me somewhat. I had dinner tonight with a friend who is aiming to have her mortgage paid off in just three more years. I know of two other friends who had their mortgage paid off by age 30. And another friend hasn't told me her timeline but I know that she considers it a high priority and I wouldn't be surprised if it was by 35 or at latest 40.

Now, I didn't buy my first place until after my 30th birthday, so obviously I'm not in the running for the youthful payoff title, but I do sometimes wonder if I should be accelerating my mortgage and trying to get rid of that debt and expense. There are two complicating factors for me. One is that my salary is very low since I try to leave as much money as possible in my company. The other is that I now have income from my basement suite which allows mortgage interest to be at least partly written off. Both of these are essentially tax planning questions.

In the first case, if I withdraw additional income from the company to pay down my mortgage I end up paying more tax on it. So I need to balance the tax savings and investment growth within my company against the interest savings and early paydown. This is a pretty complicated calculation and I do not have a model for it. So the truth is... I just don't know what the right thing to do is.

And then there is the second factor. By leaving my mortgage higher I have more interest that can potentially offset my rental income. By paying down my mortgage I lose a tax deduction - it will be lower in this year and all future years and disappear entirely much sooner. In other words, having a mortgage is not only a liability to me. It can provide tax deductions that are an asset. And again, when it comes to the right thing to do... I just don't know.

So it seems that I have questions but no answers. I am going to add this to my list of questions for my accountant and hopefully gain some insight into this question soon.