Will the new Interest increase affect you?

[Gardener]

Interest rate increase won't impact me. I have a manageable mortgage. Quick tip on being financially secure... live below your means. Then you'll make some headway.
Also the bond yield curve has way more impact on mortgage rates than the Bank of Canada. The yield curve will price in changes to the overnight lending rate, which is what the Bank of Canada controls, far before any actual change in the rate occurs.

 

[clu]

the canadian dollar has risen bigtime in the last couple weeks because of this. so i am benefiting as i'm saving money on my regular purchases from the US. today at the currency exchange they were selling at 1.277. rates haven't been that low in over a year.

And then there are those of us who live here but are paid in US dollars who aren't so happy.

 

[JonnyBoi]

I realize most people dream of being mortgage free, but in my mind it makes more sense to extend your 2.75% mortgage for as long as you can., keep those credit cards and lines of credit paid off, and invest your disposable income. Most mutual funds are performing around 5 to 8 percent right now, which puts you earning at least 2.25% over the cost of borrowing for your mortgage. Once you accumulate a substantial portfolio and achieve a comfort level, expand into self directed investments such as buying stocks.

Even back in the early 90's when I purchased my first home at 16% I believe it was, I followed this philosophy as mutual funds were returning over 20%. Even when I purchased another home, I put down the minimum from the equity in my old home, signed up for another 25 year mortgage to keep my mortgage cost down and my disposable income up and invested the rest of the equity. It was just a matter of time before my dividend checks were in effect paying my mortgage.

With compound interest, the earlier you start investing, the richer you will be.

Not to mention when you leverage and invest that loan amount you get to deduct 100% of the carrying interest against your taxes. There's a reason why most businesses and countries borrow money, because it's "cheaper" to operate using those funds rather than your own.
I think a rising interest rate will mean a temporarily weaker market and a much stronger long-term market so I am all for it. =) I am also hoping for the housing market to cool down so I can get into the single detached home game.

Paying down "good debt" ASAP isn't the wisest thing in my opinion, though it might "feels" the best to be debt free.

 

[grizzly]

Not to mention when you leverage and invest that loan amount you get to deduct 100% of the carrying interest against your taxes. There's a reason why most businesses and countries borrow money, because it's "cheaper" to operate using those funds rather than your own.
I think a rising interest rate will mean a temporarily weaker market and a much stronger long-term market so I am all for it. =) I am also hoping for the housing market to cool down so I can get into the single detached home game.

Paying down "good debt" ASAP isn't the wisest thing in my opinion, though it might "feels" the best to be debt free.

Unfortunately in canada, you can not deduct those carrying cost for your primary residence, only for investment properties.

 

[felixthecat]

I realize most people dream of being mortgage free, but in my mind it makes more sense to extend your 2.75% mortgage for as long as you can., keep those credit cards and lines of credit paid off, and invest your disposable income. Most mutual funds are performing around 5 to 8 percent right now, which puts you earning at least 2.25% over the cost of borrowing for your mortgage.

The investing part is not the advice I'd give to other people. It takes an accurate execution and certain mental toughness to go for an average 2% / year extra return by taking the extra risk. The investment can drop 20% or more in a short time; if this can cause panic or stress to the person, the setup won't be worth it.

The upside of the extra investment is not huge. I estimate a "real" average price/earnings ratio for Canadian stocks is around 20, which makes it 5% a year return. An average Canadian mutual fund has large commissions, say 2% which turns 5% a year into 3% - not much different than paying off the mortgage, not even taking into the account tax considerations and the possibility of future interest hikes. It can work ok for somebody who executes correctly and has the necessary risk tolerance.

Unfortunately in canada, you can not deduct those carrying cost for your primary residence, only for investment properties.

Yes and no, there is the Smith Manoeuvre to make a mortgage-linked investment loan eligible for interest tax deduction.

 

[grizzly]

The investing part is not the advice I'd give to other people. It takes an accurate execution and certain mental toughness to go for an average 2% / year extra return by taking the extra risk. The investment can drop 20% or more in a short time; if this can cause panic or stress to the person, the setup won't be worth it.

The upside of the extra investment is not huge. I estimate a "real" average price/earnings ratio for Canadian stocks is around 20, which makes it 5% a year return. An average Canadian mutual fund has large commissions, say 2% which turns 5% a year into 3% - not much different than paying off the mortgage, not even taking into the account tax considerations and the possibility of future interest hikes. It can work ok for somebody who executes correctly and has the necessary risk tolerance.



Yes and no, there is the Smith Manoeuvre to make a mortgage-linked investment loan eligible for interest tax deduction.

All i can tell you is from personal experience, and it has worked out well for me. When I say mutual funds are returning 5-8% that's after commission. I have had one fund for almost 20 years, and has averaged 9.2% personal return. Yes, there were times when it was in the negative, and was tempted to cash it in, but a wealthy investment savvy mentor of mine advised me not to sell, but buy more. It's like shares on sale. I didn't buy more, but rode it out, and now kicking myself for not buying more.

I would also advise to always trust your gut, not your financial adviser. Mr "financial adviser" is not looking out for your best interests, he is looking out for his own. He's looking at selling products he can make commission on. I have fired more than one adviser over the years, and actually had one refuse to do business with me because I was "to difficult to deal with." I was to difficult to deal with because I was onto his commission game, and new he didn't have MY best interest.

All I can tell you is my retirement home is now paid off, and for the last 8 years of my mortgage, my dividend checks paid my mortgage. I'm sitting on a portfolio worth 4 times what my property is worth, and am still cashing dividend checks. The only thing I have to spend my money on now a days are the pretty ladies on perb. I think it worked out pretty well for this truck driver.

 

[summerbreeze]

I realize most people dream of being mortgage free, but in my mind it makes more sense to extend your 2.75% mortgage for as long as you can., keep those credit cards and lines of credit paid off, and invest your disposable income. Most mutual funds are performing around 5 to 8 percent right now, which puts you earning at least 2.25% over the cost of borrowing for your mortgage. Once you accumulate a substantial portfolio and achieve a comfort level, expand into self directed investments such as buying stocks.

Even back in the early 90's when I purchased my first home at 16% I believe it was, I followed this philosophy as mutual funds were returning over 20%. Even when I purchased another home, I put down the minimum from the equity in my old home, signed up for another 25 year mortgage to keep my mortgage cost down and my disposable income up and invested the rest of the equity. It was just a matter of time before my dividend checks were in effect paying my mortgage.

With compound interest, the earlier you start investing, the richer you will be.

the other way of looking at things is to setup a holding company for your investments, payoff all you personal loans first as business loans (if you can get them) the interest is tax deductible whereas personal loan interest is not

 

[JonnyBoi]

Unfortunately in canada, you can not deduct those carrying cost for your primary residence, only for investment properties.

You can if the loan is a Line of Credit, and not the primarily loan to take out your home. Check the tax codes!
I've been doing it for years now.

 

[summerbreeze]

good to know, thx

 

[LM987]

Not to mention when you leverage and invest that loan amount you get to deduct 100% of the carrying interest against your taxes. There's a reason why most businesses and countries borrow money, because it's "cheaper" to operate using those funds rather than your own.
I think a rising interest rate will mean a temporarily weaker market and a much stronger long-term market so I am all for it. =) I am also hoping for the housing market to cool down so I can get into the single detached home game.

Paying down "good debt" ASAP isn't the wisest thing in my opinion, though it might "feels" the best to be debt free.

I agree.
Many banks will offer matrix/tiered/etc mortgages where as you pay them down, you create an equal amount available on a second mortgage you can draw on, for investments.
Earn more on your investments than you are paying on your mortgage and you will be WAY ahead of the game in the future.
If you just plug along paying down your mortgage, you may not be savings a nest egg.

 

[LM987]

the other way of looking at things is to setup a holding company for your investments, payoff all you personal loans first as business loans (if you can get them) the interest is tax deductible whereas personal loan interest is not

Get professional advice on this method before you set up a company for investments. Corporate tax rate on passive income is high, cost of filing is high, getting money out eventually can be costly. And the Feds are looking at ways to make this method of savings even more costly to taxpayers.

 

[sevenofnine]

who said 20% in the eighties was nothing

yeah but my house I bought in 1981 was only 80k
a new car was around 5k


the debt load is a lot higher now.

average house in Calgary is around half a million.

um
line of credit,
I did renos up the wazoo on my house and cabin. still doing it.
most on a line of credit,
so yes interest rates im going to notice,

but im not collecting my pension yet and over sixty, im thinking about it, just to get rid of my line of credit,
and I can sell house or cabin or both

no panic, I can manage now even with another few rate increases,, just less breathing room,,

it is more annoying then real, I mean thinking about it, listening every month, are they going to raise the rates again,
one rate hike i didn't really notice, just more psychological then real

 

[sevenofnine]

its not the interest rates.

its the dam life insurance on debt.

it fucking doubles and triples as you get older,

dropped the life insurance and my payments dropped by half,
can finally pay the dam thing off.