Episode 97: Why You Shouldn’t Pay Off Your Canadian Mortgage (what you should do instead)

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Should you pay off your mortgage? Is paying off your personal mortgage early truly the best financial move you can make? If you do, then it’s possible you will miss out on other wealth-building opportunities.

In this episode, Kyle Pearce and Jon Orr explore a dilemma many homeowners face: Should you focus on paying off your mortgage early for peace of mind, or use those extra funds for strategic investments that could grow your wealth? 

They delve into using whole life insurance policies as a replacement for home equity lines of credit (HELOCs), explaining how these policies can offer flexibility, liquidity, and control over accessing capital. 

For anyone trying to figure out the next best financial move, this episode provides a breakdown of strategies and tools to help you make informed decisions about answering the question: Should I pay off my mortgage?

• Learn the pros and cons of paying off your mortgage early versus using the funds to invest in other assets.
• Understand how whole life insurance policies can be an alternative to HELOCs for accessing capital.
• Gain insights on leveraging home equity to increase wealth through rental properties and the stock market.

Tune into this episode now and discover how to make the most of your mortgage and investments for long-term financial success!

Resources:

• Dig into our Ultimate Investment Book List
• Book a Discovery Call with Kyle to review your corporate (or personal) wealth strategy to help you overcome your current struggle and take the next step in your Canadian Wealth Building Journey!
• Follow/Connect with us on social media for daily posts and conversations about business, finance, and investment on LinkedIn, Instagram, Facebook [Kyle’s Profile, Our Business Page], TikTok and TwitterX.
• Looking for a new mortgage, renewal, refinance, or HELOC? Reach out to Jon to share some options.

Calling All Canadian Incorporated Business Owners & Investors:

Consider reaching out to Kyle if you’ve been…

• …taking a salary with a goal of stuffing RRSPs;
• …investing inside your corporation without a passive income tax minimization strategy;
• …letting a large sum of liquid assets sit in low interest earning savings accounts;
• …investing corporate dollars into GICs, dividend stocks/funds, or other investments attracting corporate passive income taxes at greater than 50%; or,
• …wondering whether your current corporate wealth management strategy is optimal for your specific situation.

Have you ever wondered whether paying off your mortgage early is the best move, especially with fluctuating interest rates, or if you could leverage tools like a HELOC for real estate investing? In this episode, Kyle and Jon explore how Canadian investing strategies, such as using participating whole life insurance or permanent life insurance, can enhance your wealth-building efforts through infinite banking or the “bank on yourself” approach. They also discuss how real estate and universal life insurance can be used to minimize income taxes and support estate planning, all while maximizing your financial flexibility. Tune in now to learn how to optimize your mortgage and investments for long-term success!

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Detailed Episode Summary 

Quick recap

Kyle and Jon discussed the pros and cons of paying off a mortgage early versus paying it down on schedule, with Jon sharing his father’s experience of paying off his mortgage early but not knowing what to do with the extra money. They also explored the potential of using home equity for other investments, such as rental properties or the stock market, to increase overall wealth and cash flow. Lastly, they discussed the use of whole life insurance policies as a replacement for home equity lines of credit, highlighting the potential benefits and drawbacks of different financial strategies.

Next steps

• Kyle and Jon to create content explaining the pros and cons of paying off a mortgage early versus investing extra funds.
• Kyle and Jon to develop educational materials on using whole life insurance policies as an alternative to home equity lines of credit for accessing capital.
• Kyle and Jon to schedule discovery calls with interested listeners at canadianwellsecrets.com/discovery to discuss individual financial situations and strategies.

Summary

Mortgage Payoff Decisions and Financial Goals

Kyle and Jon discussed the emotional relief of paying off a mortgage and the subsequent question of what to do next. They considered the pros and cons of paying off a mortgage early versus paying it down on schedule. Jon shared his father’s experience of paying off his mortgage early, but not knowing what to do with the extra money, as it was spent on various things. They concluded that there’s no one-size-fits-all answer, and the decision depends on individual circumstances and financial goals.

Managing Extra Funds and Investment Opportunities

Jon and Kyle discussed the importance of having a plan for extra funds, such as those from a mortgage payment. Jon emphasized that if no plan is in place, these funds will be absorbed into the daily budget and may not be used effectively. Kyle agreed, suggesting that having a plan in place allows for better decision-making about how to allocate extra funds. They also discussed the potential of using home equity for other investments, such as rental properties or the stock market, to increase overall wealth and cash flow.

Discussing Home Equity Loans and Investment Strategies

Jon and Kyle discussed the use of home equity loans (HELOCs) to invest in assets and increase cash flow. Kyle suggested that instead of paying off the mortgage, Jon could make regular payments and use the extra payments for investments. He also highlighted the tax benefits of not selling the primary residence, as it appreciates in value and provides a capital gains exemption. Kyle emphasized the importance of considering the long-term implications of debt and the potential for growth in assets. They concluded that the current strategy of using HELOCs to invest in assets is effective, but they should continue to explore ways to optimize their financial situation.

Whole Life Insurance as HELOC Replacement

Jon and Kyle discussed the advantages of using a whole life insurance policy as a replacement for a home equity line of credit (HELOC). Jon emphasized that the cash value in a whole life policy can be borrowed against, similar to a HELOC, and this borrowing is not listed as a debt. He also highlighted that the insurance company does not care about the borrower’s ability to repay the loan, as they will be paid back from the policy’s cash value. Kyle agreed with Jon’s points and appreciated the unique perspective on the topic. They concluded that using a whole life insurance policy can provide flexibility and liquidity, similar to a HELOC, but with more control and without the need for permission to borrow.

Exploring Financial Strategies and Mortgage Options

Kyle and Jon discussed the benefits and drawbacks of different financial strategies, particularly in relation to mortgages and home equity lines of credit. Kyle emphasized the potential for saving interest by extending the mortgage term, and the possibility of using the saved funds for investments. He also highlighted the importance of considering the long-term implications of these decisions. Jon agreed, suggesting that the wealthy often prioritize financial stability over eliminating debt entirely. They concluded by encouraging listeners to consult with them for personalized advice and to share the podcast with others.

Transcript:

Kyle Pearce: Hey. Hey. They’re a wealth secrets seekers. We are back here with another episode, and today we’re going to be riffing on an idea. And again, as as per usual, there’s never a right answer. But this question that I suppose. Yeah, this, this question that I saw posted on social media was a great one and I actually responded to it.

I’ll do my best to find it again and link it up in the in the show notes on this episode. But basically it was a an individual here in Canada who just finished off paying off their mortgage. And while I don’t have all of the details, I don’t have all the nuances, it sounds like they were trying to aggressively pay it off guessing here.

But I’m making some assumptions that they were making, you know, call it doubling up payments or increasing payments in order to pay that mortgage down. And they’ve now lifted this huge emotional sort of stress or weight off of their shoulders. And we wanted to take this because the question was like, what do I do now? And I think it’s an amazing question because there’s so many things that could be done.

And we need to know a lot more about this individual to know what’s a good move for them. But one thing that we do know is that there’s going to be some rational thoughts that we can share here that might be a good fit for that individual, or maybe some of those who are listening and here’s the thing this episode isn’t going to just help people who have or are at that point where they’re like just around the corner from paying off that full mortgage.

It’s for people to be thinking about as they plan forward. So let’s say you just bought a home, your first home, or if you’re halfway through paying down a mortgage or if you’re coming around that riverbend to pay off the whole mortgage, we’re going to be talking about some of the pros and cons to paying off a mortgage early or simply paying down the mortgage on schedule.

Because I’ve got some ideas there, too, that might ruffle some Dave Ramsey feathers that we’re going to offer. And again, no advice here. We’re not saying what is the right move for you, but these are all things, thoughts to consider as we move forward, for sure.

Jon Orr: For sure. So, you know, when you think about paying off your mortgage and you said the emotional, you know, feeling of that, it’s like for so many of us for so long that’s been our goal is to like to pay the mortgage off. I remember you if you if you went back and listen to the first few episodes of this podcast when we were called The Investor, Teach Your podcast, you’ll hear Kyle saying like that was his only goal was to aggressively pay down that mortgage.

And really it was like we’re trying to create this like, hey, like create a pocket of money. I know my thought was like, I’m going to, I’m going to it’ll, it’ll be the easy street, you know, like, my life will be easier because I don’t have to, like, dedicate half my income to paying down my paycheck, to paying down this, this mortgage for a long time.

You’ll all of a sudden have this pocket of money. And, you know, the question is like, well, now what? Like now what? Because here’s here’s the scary part, right? And this is the scary. I shared this on a previous episode, too, is my my my father paid off his mortgage early. So I think he he paid off when he was 40 years old. I think that’s the number. But it was like this is.

Kyle Pearce: A great story. By the way. You didn’t say you were going to bring it up.

Jon Orr: I didn’t. But but I know that it was like I asked him specifically recent, like I think it was a year ago. I asked him because my brother, he was also getting close to paying off his mortgage and he’s 40. And and he was he was saying, well, what’s that? He was asking the question, well, what should I do now?

And I remember going back to my father and saying, like, well, what did you do? You know, like you paid off your mortgage then like tell us what you did with that chunk of money, because all of a sudden you’ve got this pot that all of a sudden, you know, you can be redistributed or put it towards investments or, you know, put towards your financial future, you know, to make yourself, you know, get closer to, say, retiring early or having this, you know, this this, you know, financially independent area that he maybe was always working towards because he was a pensioner.

And he he he literally said he didn’t know he didn’t know where the money went because, oh, I know something came up and all of a sudden, you know, we had to pay this and something else came up. And I think I think we were getting ready for school and it was like, okay, well, I, we had to pay for this. You know, maybe this looks at the university and and all of a sudden it.

Kyle Pearce: It was gone.

Jon Orr: The, the lifestyle creep crept up for them so much that he now couldn’t say where the extra monthly payment had gone. And, and it it just kind of was absorbed into the daily budget or the monthly budget. And and I remember that was the warning that I gave my brother. I’m just saying, like, look, you get you got to make sure that like, what are you going to do that?

Because here’s the here’s the downfall. It’s going to get absorbed into your daily budget if you don’t do anything with it. And is that what you really want? Are you looking to go? And I go, Hey, I’ve got this. Like I can now spend freely and I have to worry about what I really want to do. Or maybe there’s something that I want to add to my lifestyle that I’ve never been able to add.

Like those are the choices you have to make. But realize if you don’t make any choices about where this extra payment is going to go, that’s what’s going to happen. You will be like like him where he didn’t know where it went. It’s just going to be gone. And I think that’s not what you’re after. Like the people who are saying, I’ve been aggressively paying down my mortgage to be financially free because that’s one huge item off your list.

To make sure that your passive income outweighs your monthly expenses, you have to figure out what are you going to do with those dollars? Because if you’re trying to grow your wealth, then put them towards something to get you there quicker or get you there so you’re stronger or or, you know, like, I don’t think we’re in the business of, of if you’re listening this podcast of business, of just maintaining our current, you know, wealth and going like, hey, this is exactly where I’m going to be forever.

We’re all looking to kind of pad and build that financial floor up every year. Can we get it stronger? And you’re if you don’t have a plan for where that dollar is going to go, it’s going to be gone.

Kyle Pearce: Yeah, that’s a huge lesson right there. And, you know, if we roll back and you, you know, you had said like, you know, obviously some expenses came operated and your your father was saying, like, you know, it maybe maybe it was like you guys were heading off to university or maybe you were heading to here. But here’s the thing.

One thing I know for certain is that if let’s say it, you know, they had one more year on the mortgage. So that meant they had mortgage payments those months. They wouldn’t have missed that mortgage payment and they would have still made it through and they would have still been here today to have this conversation. And they probably still they wouldn’t go like, you know, the toughest year of our life was that year before paying off the mortgage.

You know, like, man, things really got tough. Like there was more expenses that just showed up in that one year. Like, no, it was just lifestyle creep took over. So there were expenses. But here’s what really happened, is that there were all these other things that just squandered the money, right? Like it’s like you give yourself permission. And that was actually like, I want to give people permission like that, if that’s your plan.

I like what you said. It’s like you have to just decide what it is so that at least you know, and then that way, 20 years from now, you can say, you know what we did? We decided that we wanted to take that extra 1500, $3,000 a month, whatever, to go out to dinner more often to, you know, golf more to like whatever.

So at least you go, I know what I did. I got something out of it. You can then assess whether it was worth it to you or not, but at least you did what you had planned to do. But if you don’t, it will just kind of evaporate and you’ll just say life was, you know, pretty good. But I would argue if, you know, let’s say they saved that money and put it somewhere else, they would also say life was pretty good.

You know, it’s probably not going to impact things in the long run, especially their memories of how things went. So that is a huge, huge piece that we have to be thinking about. Is so is your plan if you are paying down your mortgage more, more aggressively, like let’s imagine you have a $2,000 mortgage and let’s say you’re committed right now to paying $4,000 towards that mortgage because that’s a goal you have.

I’m not going to take that away from anyone. It was a goal of mine. And then I recognized, Hmm, I think I can do better than putting all that money into this home. The key is when that mortgage is gone, that is not just a $2,000 mortgage payment. You’re getting back, you’re getting $4,000 back. So the question is, is how are you going to allocate those $4,000?

Right. You had 2000. You had to pay you had 2000 that you were a voluntarily paying for a long period of time. That’s a large sum of money that’s opening up for some people. They might say just by doing that and getting to that stage of life, that $4,000 back in my lifestyle can actually go towards my financial freedom number, which is all I am looking to do, and that I will be able to survive based on the other assets that I’ve accumulated in, you know, whatever shape and form.

But just know that that home itself is not going to produce you cash flow to assist you with that financial freedom number. It will give you back your mortgage payment and the extra payments. So that is something that’s really important for us to analyze here.

Jon Orr: And I’m going to argue, like you said, something really important right there by saying like that home won’t give you more cash flow unless you make use of the equity in your home. Right. Like when you said that you’re going to get $4,000 back in your pocket, you technically are getting for more than $4,000 back in your pocket in a way, because your home’s value likely is going to go up every year.

Right. Like let’s say you pay off your mortgage, you got your debt free, which is a lot of people’s goal. And all of a sudden it’s like, let’s say my house is $1,000,000. Now I have $1,000,000 in equity sitting there doing nothing. We call that debt equity. It’s sitting there going like maybe, but maybe your financial plan says, I’m going to cash that in later and that’s going to fund the rest of my life.

Like that might be the case, but it’s sitting there doing nothing. It is depreciating in value. Hopefully, you know, in the long term it’s going to appreciate in value. So when you take that $4,000 and you put it back into your budget, really, you’ve got that other money that’s sitting over there appreciating in value, but you’re not doing anything with it like that.

Didn’t come along with it. Whereas like what? So when we switch gears and say if we do have access to the equity, can we make use of the equity in that home for other purposes to add to our assets, to add cash flow? So can we take this, you know, value of this home that’s now paid off, but then get get it so that we can then go, hey, let’s buy that, which is going to produce cash flow in my pocket.

And now you’ve got to use this for every dollar, right? You’ve got that, you’ve got that dollar that’s like sitting in the value of your home appreciating. But then you, you bought it and said, I’m going to do some arbitrage on this. I’m going to take it over here and I’m going to buy this rental property with some of this equity, or I’m going to put it in the S&P 500 or I’m going to you know, I’m going to I’m going to buy this asset over here.

And all of a sudden now that assets appreciating this asset over here is appreciating this asset also might be cash flowing. And the arbitrage over here is all of a sudden putting money in your pocket, but you did nothing with it. If you don’t have that plan, if your house is paid off. Now, here’s the kicker right? You could do this now without paying off your house, which a lot of you listening right now do this like you’re using your hillock, your home equity line of credit to to make these choices.

We’re doing that. We’ve been talking about that a lot here on this podcast, is you’re using that as that asset to go and make more assets and make more money put in your cash flow. The likelihood of you doing that by listening to this show is is high. So the question is like, have we make that out? What do we do?

What do we do when we run out of hillock? Like, do I want to always use my hillock? It’s like if we’re already okay with this idea of like using my hillock to buy assets, a big wonder that I used to have for a long time is like, how do I get another he look like?

Kyle Pearce: Exactly.

Jon Orr: Can you give me another house to get another hillock? Yeah, my to property. But then there’s money stuck over there and sometimes that’s tougher. It’s like, I want more, more capital. Can I get more capital? Because we know that we can make more money.

Kyle Pearce: I love it. Now, here’s the interesting part is that there’s no perfect way to do this. And everyone’s a little bit different. And sometimes it just takes, you know, changing your mental your mental state, your mental, your your your psychological thoughts around debt. We have a debt episode that we released a few weeks ago. I will put it in the show notes.

So if you haven’t listened to that yet, you really should. But like think about this. There’s two things that popped into my mind as you were sharing that. John So what I was thinking is, okay, when you have this, this, this mortgage, you might be contributing more than you need to rather than kind of going the whole other way and like, you know, being like, I’m going to pull everything out today.

One small shift you can make is just make the regular payments and take the extra payments and start putting that into investments. Like that’s a really easy way to slowly slide into this thing because here’s the interesting part is that you talked about the homes appreciating and we look at it and we say, yes, they go up in value over time.

That’s a thing we know. But the reality is the majority of the appreciated the appreciation of typical homes and real estate and property in general is actually the dollar losing its value, right? Like we’re actually like able to buy less with the same money. And that part is happening naturally when we have a mortgage. So when you have a mortgage on your primary residence here in Canada, we can’t speak to everywhere in the world, but here in Canada you are likely getting some of the best borrowing rates possible.

When you when you try to take out a mortgage on a rental property, you get less favorable rates right? The risk is higher on the lender. So the thought is like if you can borrow money, some of the cheapest dollars in your pocket, remember when you are borrowing money, the interest rate is set based on essentially inflation numbers, right?

Like the higher inflation is, the higher interest rate goes for borrowing money. So the reality is we can stretch that out longer. You are going to be net ahead specifically if you take the extra money that you are not putting into brick and mortar or your home and you put it into other assets of your choice, it’s totally up to you.

We’re not going to tell you what that should be for you, but that is a fact and it’s really important. But here’s the other part that I think is really critical. You talked about the idea of people potentially selling their home later to help them for cash flow. Right. Like if that’s your ultimate move, your ultimate goal, imagine like selling your home means you’ve now lost the asset.

Like you don’t have that home anymore. It’s not growing. So if it’s $1,000,000 home, people always say, I’m going to downsize. You’ve taken $1,000,000, which is capital gains tax free. You have a capital gains exemption on your primary home. It should actually be the last thing that you sell to downsize because you are getting a capital gain on $1,000,000.

Whereas if you go from a million and you downsize to 500,000, first of all, you lost a lot in expenses and all those things, but now you have a half. The value is appreciating, which means you’re getting half the capital gain, which means you are gifting back to the government, half of the capital gains exemption that you had on that property.

So in a perfect world, you’d actually be scaling up over life and you would never sell that asset because that capital gain asset is going to be a huge tax advantage. One of the greatest tax advantaged gifts that we have as Canadians like in the U.S. they don’t have that same that same opportunity. That’s why they get to expense their interest.

They actually get to write off interest on their primary residence. A lot of people don’t like that here that we can’t do that, but we don’t actually experience a gain on our property, which is fantastic. So the thought should be, let’s make sure that we don’t put too much money in this property. Because remember, if I put $1,000,000 into this property, it could be stuck there because the bank doesn’t have to give you money.

They don’t have to lend against that property. And even though the property is worth a million and you only want to borrow 200,000 if they look at your income or they look at your tt1 general, they look at what’s going on in your life. Oh, shoot, you’re behind in this or you’re behind in that. You come on, tough times.

Now I want to go back and get my money. Guess what the banks are going to say. No are. Even though you’ve got $1,000,000 home right there, I don’t think that you’re good for it. And we don’t actually want to take your home and sell your home and have to give you the difference after they just want their interest.

So these are things that we have to be really cognizant about when we’re trying to think about things like debt and we go, you know, I want to get that debt gone because in my mind I know that it’s a lot of interest. But remember, if I’m paying a 5% mortgage, if I get the same investment at 5%, guess what?

First of all, if I borrow against the home, I get a tax write off on the 5%. But then secondly, I’m actually growing an asset at 5%. So even if they were exactly the same, it’s like the money you paid in interest over here and was tax deductible. Guess what? Over here that money is growing at 5% and now I have an asset and I can sell that asset at any time if I needed to in that tough time where I don’t have to rely on a bank.

So this gets very complex. I know as we dig in here, but we really need to be thinking more deeply then let’s pay off the mortgage because if we have, that is our only game plan. We’re actually leaving a ton of opportunity on the table.

Jon Orr: Mm hmm. That’s the secret sauce for me, for sure. Is. Is what you just said is that and I think a lot of us are, if you’re trying to move towards, you know, as an entrepreneur or a business owner and trying to kind of get to this point. And this is what scares me about, say, when you say retire and you’ve retired to a passive income source is now it’s tough for you to show that you have like regular income.

It possibly could be right the bank is going to be like, let me let me see your t boards. Let me see like how much tax you’re paying. Let me see how much income you’ve produced. Oh, well, you don’t meet our criteria now to borrow against your own home, and now you’re out of luck to buy assets from that which which, you know, sounds, sounds not awesome because you’re at their mercy, you know, like, whereas, whereas if you do go and say, start earlier and go say, you know what, instead of aggressively paying my mortgage off or if I’m close to paying my mortgage off, I’m like, What am I going to do with the

extra mortgage payment? I would recommend is what we’ve done, you know, is, is let’s investigate using a whole life insurance policy to be the exact same replacement as the healer. Because if I’m okay with investing in a hillock or using my hillock for investment purposes or buying assets like that and describing what you just said is like, I can put it over here, I can write off the interest, I’m going to make money on that asset.

Like then there’s, there is no difference between using your hillock for that and using the cash value in your home or your, your whole life policy because they’re, they function the exact same way instead of, say, going out and buying another house or another asset and borrowing against that asset, the asset is you you’re you’re going to say put a monthly payment or an annual payment towards yourself and then that cash value is there to borrow against.

And the nice part about that in this goes against like not goes against but contradicts or is is the kind of like the the kicker when when you’re going to the bank and saying saying give me, you know, I’d like to borrow against my house. And I’m like, no. And then like when you go to the insurance company and say, hey, I’ve got this cash value that I I’ve accumulated year to year to year and I would like to borrow that value to go buy this asset.

They just say, Where do you want me to put the money? Like there is no end. And it’s also it’s it’s not listed as a as a debt, you know, it’s not on like no like no one really knows that you borrowed this money other than the insurance company because you know, you’re the asset that’s going to cash in.

They don’t care whether you have enough money because they’re going to get paid back at some point. You know, at some point you’re going to kick the bucket here.

Kyle Pearce: And we’ve dropped secret sauce to inform people in the past that, hey, guess what, you are going to die at some point, right?

Jon Orr: Like, okay, this is why it’s that’s why they don’t care about about all those things. It’s like you’ve got this asset that acts exactly like a home equity line of credit, but it’s easier to get access to your money. It’s just as liquid and you don’t have to ask for permission to use it or get, you know, get, you know, revalue.

Once you have your home equity line of credit, you know, you don’t have to ask for permission to borrow against that home equity. But if you needed to like refinance it, you do. But you never have to do that with your or with your whole life. This is this is the move that we’ve made. You know, it’s like, let’s go get one of these to add to our capital pile so that we can be flexible when we need you.

And that is the secret sauce that allows us to add to our assets. When say, you’re close to paying off your mortgage, you don’t want to touch your mortgage or or you can do both at the same time because it’s not an either. Right.

Kyle Pearce: Right. I love it. And here’s the interesting part. I just had this interesting epiphany as you were saying this. We’ve been doing this for like years. You know, like we’ve been doing this for a long time, but I’ve never thought of it in this exact way. And this is why I love doing these episodes, because every time we talk through like you and I, we don’t talk at this same depth on a daily basis because we’re we just, you know, we kind of feel like we both know a lot of the similar things.

But when we’re actually putting an episode together, we start to try to articulate it for others out there. So we try to do this for the audience. We start to describe things in ways that are are kind of unique to you and unique to me. And what what I’m hearing you say is, like, I gave the example of you got $2,000 mortgage payment.

You know, you had this person who was putting this extra 2000. Now the numbers, you can change them however you want. It doesn’t matter. And they don’t have to be equivalent, of course, but you have to pay 2000 because that’s what the terms of the mortgage are. So you have to continue paying that great. Go for it. But that other 2000, what I heard you just say right now for someone who was paying it off without a line of credit, they’re putting an additional $2,000 into a home.

That’s going to appreciate whether you do that or not. It is going to save you some interest over the long term. But remember your current, say, five year term that you have with your with your insurance or with your bank company, it is going to save you some of that interest, but it is now stuck in there. And if you want to get it back, you now have to ask them for a home equity line of credit or you already have a re advanced or home equity line of credit.

So it’s available to you. Great. What I just heard you say is, rather than do that, rather than take the extra $2,000 and put it into the mortgage to open up a room or to lock it up because you don’t have a re advanced home equity line of credit, you’re saying you could take that 2000, you put it into a permanent insurance policy and you’re going to generate cash value there and you’ll be able to leverage that, whether the insurance company likes you, likes your credit, likes your family, likes the economy, likes anything that’s going on, whether they like it or not. You have access to and the insurance company, that’s 90% of that cash value whereas not.

Jon Orr: Gonna go down.

Kyle Pearce: Exactly and not all of your equity can be borrowed out of a home. You can borrow up to 80% of a home on a traditional mortgage and up to 65% on a home equity line of credit. So what you’re saying is, if that’s your move right now, you could immediately do this move better, even though we think you should then leverage to buy more assets.

But even if you don’t want to do that, you’re just thinking about no, I just want to put more towards my quote unquote mortgage. You could be putting that same amount towards a policy and have the liquidity that you wouldn’t actually have on paying additional funds into your mortgage. To me, that’s a massive, massive secret source for, I’m sure, many of the people who are listening to this episode.

And here’s the last one that I want to share and then we’re going to wrap this thing, is that every one to 3 to 5 years, typically here in Canada, you have to renew your mortgage, right? It can go longer, but very rarely do you see people going longer because you’re taking a hit on the interest rate. Right.

There’s more uncertainty for the banks. The interesting part is, is when you get to renewal time, you have options to ask the lender or to actually refinance. And what I mean by that is you could actually say, hey, listen, I want to keep the current balance of my mortgage. Let’s say it was a 25 year amortization. You pay five years, you have 20 years left.

You could say, you know, what are you okay with stretching it back out to 25 years or stretching it out to 30 years? And what that does is it reduces the payment. And if you’re going to do something like this, I just want you being smart with what you do with the extra funds, those extra funds that you’re saving on that payment, you could then take put it into an asset directly or you can funnel it into a policy and then leverage the policy to put into assets.

But think about this from a depreciation standpoint of the dollar. If you go and you have 20 years left, you can go to that lender. And typically, typically anyone can go and now extend to 30 years amortization that’s going to reduce your payments. It will increase the interest you’re going to pay over the loan over time.

Jon Orr: Sure.

Kyle Pearce: But if you take those dollars and you put them to other investments and we’re talking investments that are you know, we’ll talk index funds, real estate, like whatever you want to do, you are going to be net ahead in the long run. And here’s the thing. Your actual cash flow needs at minimum for this mortgage are going to continue to go down unless you refi out more equity and you stretch the amortization.

But these are things that we aren’t that aren’t advertised out there because of course, we don’t want to put people in a bad spot. But if you are diligent to be listening to this podcast, be caring about your financial future, to want to build wealth, I’m sure that you have the dedication and the determination in order to follow through on these things so that $2,000 you had to pay might turn into 1750 the next time you renew, if you choose to extend and potentially it could go or stay the same by pulling equity out and pulling and putting that equity into something else.

Whatever you choose, just know what that choice is and what you’re giving up in order to sort of scratch that emotional itch. Right. To get to zero debt is a great goal, but it’s a very emotionally charged goal. Right. So just make sure that on the rational side, you know what you’re leaving on the table, because for many people, this can turn into hundreds of thousands, millions of dollars that you’ve left on the table, simply because we want to get to a quote unquote goal that we were taught when we were very young that we should all be working towards.

Jon Orr: Yeah, it’s definitely a goal of many people, but I’m going to argue that it’s not a goal of of the wealthy. It’s not a goal of the people that are working towards, you know, strengthening that financial floor like you are listening right now. We want to thank you for for listening. And, you know, if you heard anything here and you want to kind of take a deeper dove, then we encourage you to get on a call with us, let us know your situation, because we can we can help plan those next moves for you.

You might even have the wonder that says like, well, if I use my home equity line of credit and I could buy it, you know, I could I could add to the to the asset with a with a whole life insurance policy. But why wouldn’t I just put that in the stock market like we can talk about what that would mean and why you might not want to do exactly.

Versus doing two things at one time. So hop on a call with us. You can head on over to CanadianWealthSecrets.com/discovery and we’re going to kind of talk through your situation and talk about what what you could be doing to build your financial floor and make it make it concrete, make it stronger and raise it up.

Canadian Wealth Secrets is an informative podcast that digs into the intricacies of building a robust portfolio, maximizing dividend returns, the nuances of real estate investment, and the complexities of business finance, while offering expert advice on wealth management, navigating capital gains tax, and understanding the role of financial institutions in personal finance. The show also digs into the underutilized corporate owned life insurance as a wealth building and Canadian tax planning tool through the use of participating whole life insurance that can not only resolve the issue of removing the income tax target from the back of your corporations retained earnings and put more money in your personal pocket both now and in the future.

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