Comox Valley – “Building wealth through home ownership”.
Building wealth through home ownership
Special to Financial Post | January 26, 2017 | Last Updated: Jan 30 10:52 AM ET
With the changes in mortgage lending rules coming into effect across the country, the state of the Canadian housing market is on the minds of many first-time home buyers and current owners alike.
While the new rules will undoubtedly have an effect on the market, and on first-time home buyers specifically, there appears to be too strong of a focus on mortgage rates as the only important factor. There also seems to be an overarching perception, largely perpetuated by social media, that millennials can’t or don’t want to be homeowners; but a recent survey by CIBC1 found that 86 percent of millennials view home ownership as important, even though 42 percent of them are renting and 21 percent are still living with their parents. On top of this, 63 per cent say it makes financial sense to build equity and save for retirement while 59 per cent of millennials in the 18 to 34 age group say home ownership provides a sense of personal freedom.
Getting a mortgage is one of the best ways to build your net worth and personal wealth, for a variety of reasons. When looking at purchasing a home it’s important to look at the big picture, and calculate the costs but also how much equity you’ll be building by making this investment.
“Despite rising home prices in big cities like Toronto and Vancouver, homeownership remains a good long-term investment and the building block of achieving financial freedom,” says Sean Cooper, author of the upcoming book Burn Your Mortgage, which provides homeowners with tips and strategies on reaching mortgage freedom sooner. “Owning a home offers many benefits – forced savings, a source of income if you decide to rent out your place, and tax credits if you’re a first-time homebuyer.”
In 2016 Canadian housing prices increased by a staggering 17% compared to last year. While this is likely not sustainable (the national average increase was 5.9% year over year since 2007) it demonstrates that a home, unlike other investments, is almost guaranteed to be an appreciating asset. As the value of your home increases and you continue to make mortgage payments, you’re building your equity — basically money in your pocket. According to Statistics Canada, Canadians who own their own home have five times the net worth of those who don’t. It’s also a unique investment because it serves as the place you reside, which is a huge benefit.
On top of that, as long as your home is your main residence the entire time you own it, you won’t have to pay any taxes on your gains when you sell; the only other investment you can make that’s protected from capital gains is a tax-free savings account.
As much as rates shouldn’t be your only focus, it’s important to note that interest rates are at an all-time low, meaning more of what you pay each month is going towards your principal. The more money going to your principal, the sooner you can be mortgage-free.
“Instead of using low interest rates as an excuse to pile on more debt, use them as an opportunity to pay down the biggest debt of your lifetime, your mortgage. Low mortgage rates likely won’t be around forever. Take advantage of them while they last,” says Cooper, who paid off his mortgage in three years by age 30.
Getting mortgage-free should be top of mind; and believe it or not there are lenders out there that will reward you for paying off your mortgage faster.
Mogo2, for example, launched MogoMortgage this month — a digital mortgage solution that makes it easier for consumers to both build wealth and achieve mortgage freedom. The MogoMortgage is a digital mortgage experience that allows users to access information on their mortgage application from anywhere, on the web or through the mobile app, with a simple application that only takes four minutes to complete. It’s also the only mortgage experience that provides free monthly credit score monitoring to help track financial health, which you get for free when you create a MogoAccount.
MogoMortgage is a digitally-led mortgage experience, but still has a human element, with mortgage specialists supporting users along the way. They’re also offering their best rates upfront, right of the bat, unlike many banks that require negotiating from their posted rate as a starting point.
Once the mortgage is funded, Mogo’s customized dashboard3 engages consumers to build their wealth by showing them the value of sticking to their payment schedule, and encouraging consumers to make extra monthly payments so they can get on a path to financial freedom. By motivating members to pay off their mortgage faster, Mogo can help lower the overall cost of borrowing for its members.
Mogo will also reward you every year to celebrate getting closer to paying off your mortgage and being financially independent; they send a bottle of champagne when you close your mortgage, and gifts like a dinner out on them when you’ve reached your one year mortgage payment anniversary.
Building wealth through homeownership is one of the smartest investments you can make. By focusing not only on your mortgage rate, but also on appreciation, building equity, and choosing the right mortgage product, you’re setting yourself up to be on the path to being mortgage-free faster.