Episode 17: You Paid Off Your Mortgage? Now What?
In this episode we explore a scenario in which Matt has the option of completely paying off the mortgage of his next personal residence. He wonders aloud how best to approach having funds to invest with the financial peace of mind that comes with paying off one’s mortgage. Kyle and Jon share some incredibly creative ideas on how to maintain financial flexibility while enjoying the comfort of having a minimal mortgage.
What you’ll learn:
- Should I pay off my mortgage in full?
- What happens after my mortgage is paid in full? What options do I have?
- What amount of a split between HELOC and traditional mortgage is optimal for me?
- Should I choose a variable mortgage rate or fixed rate in this economic climate?
- How do I diversify my investment portfolio for my personal situation?
- The Invested Teacher Wealth Building Booklist
- Retirement Planning Spreadsheet
- Download our Wealth Building Blueprint
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Matt Biggley: ... and I think the other one we didn't really talk about is just the temptation of seeing all that money sitting there and thinking that it's your play money or for some discretionary purchases, for a trip, for whatever else it might be. It requires a lot of self-discipline to have that kind of cash sitting, and you can see it in your account every time you log in. Anytime I go into my banking, I'm like, "Oh, I have an existing home equity line of credit on another property I own, which I have not touched." But you see it all the time, and I think psychologically, it's like you think you have more money than you do when you have that chunk sitting there. So that's a potential downside.
Kyle Pearce: Welcome to The Invested Teacher Podcast with Kyle Pearce, Matt Biggley, and John Orr.
Jon Orr: Hey, folks. Get ready to be taught as we share our successes and failures encountered during our real life lessons, learning how to build generational wealth from the ground up.
Matt Biggley: Welcome, Invested Students, to another episode of The Invested Teacher Podcast. Okay, this one is going to be-
Jon Orr: This one's you, Matt.
Matt Biggley: Yeah, this one's going to be interesting. This is a scenario that I am currently in that I've been pondering, that I've been throwing at both of you, and I think this will be a really fun episode just to hash it out, get some ideas going, some brainstorms, and some next steps for me to explore. So here's the scenario.
Jon Orr: All right inaudible.
Matt Biggley: I've got this incredible good fortune to have the option to be almost mortgage free. I'm purchasing a home, get it on June the 1st, and so I could just about buy it cash. Now for a lot of people, if I'm our parents' age, this is a big, big moment in life, right?
Jon Orr: For sure.
Matt Biggley: No mortgage, unbelievable. 43 years old, mortgage free, it could be incredible. Sounds pretty good. But I am not from our parents' generation and I have an investor's mindset. Having had this good fortune, I want to know what are some options? What do I do? How do I approach it? What's the balance? How do I keep my family feeling safe and semblance of that peace of mind of not having a big mortgage? But then how do I deploy any potential money to go out and make more money? So that's my scenario.
Jon Orr: inaudible. This is a good thing we can riff on for sure. Now, I think just thinking about mindsets, my mindset has always been, I think Matt is in that same rooted, traditional way of thinking about your mortgages, "If I'm mortgage free, that's going to be great. I all of a sudden have unlocked this payment that I have had for the last blank number of years that I can just what? take this," because that's one of my options, "I can take this payment and now I can put it towards other investments or other things to continue building my wealth."
But I think one of the wonders is what happens when your mortgage is paid off? Okay, I don't have to pay the bank anymore, but maybe you took us up on some of the recommendations we've had early in our episodes like getting your home equity line of credit set up and making sure that you've had that access to that capital, your equity in your home to invest in different options like real estate.
But my wonder too is like, okay, let's say next month I put my last payment down to the bank. Now it's almost like I envision that this contract with the bank is now over. I don't have to give them any more money, but does that mean my home equity line of credit just disappears as well because that was tied into that same kind of almost like contracts. What happens to that? That brings up another question. This wonder maybe you're having that maybe I should get another mortgage on my home to keep this thing going or keep paying the bank so I have access to this fund. So these are all great questions. What happens? And also what should I do with this extra money? And maybe I shouldn't pay it all back.
Kyle Pearce: Do you know what, guys? This is such an interesting one. And to be honest, I think when people are starting their journeys, no one's really thinking along these lines because it seems like so far off. So you're obviously in an amazing position, it sounds like, where this is a possibility for you and now you're grappling with this scenario. Now, I think what could be really helpful, even for those who are like me, I have a mortgage, my friends, I've used capital in order to start building our real estate portfolio and it'll be a while yet until I am in the same position as Matt.
But something for us to think about. What's possible? I think that's the biggest question that a lot of people may or may not have. Some people when they bought their first property or their first home, their primary residence, they may have put down a lower down payment than they could have or maybe that they would've liked to. Because when you buy a property, at least here in Ontario or here in Canada, you can buy a property with less down than, say, someone like we who already own a property.
And when you go to buy that next property, the bank is a little bit harder on you, they're like, "Listen, we let you put down a lot less," in some cases, 5%. They used to have cashback mortgages even back in the day when I was buying a property or buying my first home, they had this thing where you could literally borrow from the property that you were going to buy from because just the way the market was that banks were taking on a little bit more risk at the time. So people could literally go in with no money down, or I think it was like two, three, even sometimes 5%. But then at closing you'd actually walk out with more than that money back. So that's kind of mind-blowing, you're not seeing that as often anymore.
Now, for those who went in and they brought 20% down, they had a benefit because CMHC actually would insure that mortgage, so actually rates are lower, there's less closing costs, you're not paying an insurance amount to CMHC to have that lower down payment. So there's all kinds of factors here. But for friends like you there, Matt, who could potentially buy this new property, so you've sold your previous property, you are actually, we're going to call it downsizing in value on the property, so that's where a lot of this is coming from. So you've sold your previous property for a gain and you've actually bought a property that is less costly or it has a lower price tag than the home that you had sold.
And now you're going, "Do I just continue paying the same amount I used to pay on the old home? What do I do here?" And really you have the option to actually borrow up to 80% of the appraised value of that property. So you could take that 80% and then maybe go do with it. But the question that immediately pops into my mind, and this is the same thing, Matt, anytime we've ever considered selling a property from our portfolio, the big question we always ask ourselves is, "What are we going to do with the money?" It's great to have in case a deal comes along, but how long are we going to wait, and I guess how long is it going to cost, or how much is it going to cost me in interest to hold on to this capital? Am I confident to take that capital and do something else with it that's going to actually give me a greater return than, say, the mortgage amount?
And nowadays as we record this, mortgage rates are, I think they dropped a little bit recently on a five years, so they're in that 5% range and you're going, "Hey, where can I get that? I can't just go and pick up any old rental property." We've already discussed that at length. So where's your head at right now, Matt, when you're thinking about this? Do you have a deal in mind, or you just in case? What's going through your mind that brings this idea up and makes you really want to get your head wrapped around it?
Matt Biggley: This is one of the questions I'm seeking some answers on or some perspective on because if there's no imminent deal, does it make sense to take on a mortgage when you don't have to and pay that interest to the bank and rates are fine, they're certainly not what they were, but they're, I think, still reasonable in and around that 5% or so. But does it make sense to pay interest on money that I'm not readily having to use or I don't have a target property, say, in the pipeline right now? Is that stupid? Does that make sense or not?
Jon Orr: Here's something that I've learned over the course of a last couple of years, and I think we've shared this with both of you, and Kyle you know about this too, and I think we chatted about it, Matt, a while ago is that all money has interest somewhere. There's the cost of money somewhere, either you are paying interest or you're losing the ability to gain interest. So you could say, "I'm going to borrow this money from the bank, and I'm going to take this money, this pot that I just got from borrowing it against my home and making a new mortgage." But like what Kyle's saying, "Where do I put that so that I can earn interest on that? Maybe I hold onto it, maybe not, maybe it's ready for the next deal." That's fine.
On the other side of things is if I don't do that, I could be taking the monthly payment that I was contributing to this mortgage and then using that to earn interest on. So somewhere there's interest in this scenario, it's just you're either losing it, you're either paying it, or you're losing the opportunity to get it. So that interest is going somewhere of your money.
Kyle Pearce: Yeah, absolutely. And I think where you may have heard that, John, because it popped right in my head when you said, I think that's like a Nelson Nash quote from the Becoming Your Own Banker book-
Jon Orr: It's in the infinite banking concept kind of world for sure.
Kyle Pearce: Yeah. So those people who have ever heard of infinite banking, we're big fans of it, definitely lots of learning to do there. But check out the book list, it's on our book list at investedteacher.com/books if you're interested in digging in, it's definitely something we want to dig into at great length. And that is something that Nelson Nash does say, he says, "There's interest happening, you either make it or you lose it." And if you take that money and you just shove it under your mattress, let's say, you're not only losing the ability, in your case, Matt, you'd be paying interest, but then you're also losing money to inflation, which is also another big piece there as well where you're going... But it sounds like to me, while there is no imminent investment awaiting for you right now that you're sniffing out, it sounds like you want to make sure you have the flexibility to act, right?
So it brings in this discussion around what we call one of our magical finance tools, the home equity line of credit enters this conversation. Now, the one part that makes this a little bit more complex is you might assume that, "Hey, if I'm allowed to go in and either when I'm buying a home that is not my first property, or if I'm refinancing my current home, my personal residence, I can do that with a traditional mortgage of up to 80% loan-to-value." So if your house is worth 100,000, they will, and I say likely because of course every institution has their policies and requirements, and they're going to make sure your credit's good, and do you have a job, and all of those things, they're going to then say, "Hey, if all that stuff checks out, we'll give you $80,000."
Now the difference is when we start talking about the home equity line of credit, the home equity line actually has a little bit of a hiccup there because the home equity line, and I believe this changed at least, I don't know, a number of years ago, I thought it was 55%, but we did a quick Google search and it says 65%. So double-check, just make sure and make sure our number is not old here. I see February 2022. So it says, "In Canada, your home equity line of credit cannot exceed 65% of your home's value." So Matt, in your case, it's not just a straight up... well, a lot of people will be like, "Well, just open up a home equity line of credit and you're good to go." Well, you've now restricted your ability to use that equity a little bit because you're now down to 65% instead of 80%.
However, the question then becomes... and the beauty is for those who are unaware, a home equity line of credit is there for you to use, and it actually, most institutions do not charge you an annual fee or anything to have that there, it's just like having a free credit card that you choose to use or you choose not to, and really in their minds, they're sort of hoping you'll use it because they want to make some money off of you and it's tied to your home. So you've got this opportunity where you can go, okay, if your home is worth $100,000, we'll just use easy numbers, you could do a traditional mortgage at 80% of that value and you can roll that out. You can decide to make the amortization rate paid off in five years like a car, or nowadays a car like seven or eight years, or 10 years, or the traditional 25 years. That's really up to you.
Jon Orr: Just to make it very clear, Kyle, is when you're saying, "I'm going to the bank and I'm going to take out a mortgage," they're going to give you the cash on your home. So it's like they're going to give you the $80,000, put it in your bank account, and now you have the money to kind of go, "What inaudible going to do with this? Am I going to buy a property? I'm going to invest it. I have this. I know my house is worth 100% of it's value currently, that's why I got 80% of it."
Now, when you're saying bring in the home equity line of credit, and they're saying that the bank could give you a home equity line of credit up to 65% of the value, so now you can think about, "Do I take a mortgage out on the full 80% and pay that back over time, or maybe I only borrow 20% and then the rest is that sidelines money in the home equity line of credit?" Now it seems like there's some sort of give and take between how much do I borrow back in cash and pay back the bank in terms of a mortgage, and then how much do I leave on the sidelines?
Kyle Pearce: Absolutely. And one thing too for us to consider, Matt, you're in a different scenario, you're still working, you still generate an income, so we're assuming here that you would be able to actually sustain those payments. So again, the bank's going to make sure that based on your income and your family's situation and all your other debt, if you have car loans or any of those other things, they're going to make sure that all that stuff pans out first, so that has to be taken care of as you'd probably assume. And really you could do that.
But one thing I want people to think about right away is in my head it's going, "Okay, if I have a substantial amount of equity in my property," and Matt, knowing your situation, you're going to have a decent chunk of equity in that property. And I know the idea of thinking that it might be held captive in your home. We talk about that dead equity piece in that scenario. While that's scary, having access to say 65% of it on a home equity line is a great idea.
Now, for somebody else though, recently we had a chat with someone who's going to be retiring at the end of the year. One of our Invested Teacher listeners reached out to us and said, "Hey," they want to get involved in JVs, they're going to be retiring, here's their scenario. We did kind of a bit of a chat, a coaching call on what that could look like and sound like. Now for that particular individual, if we're having this conversation, it might be a little bit different because she currently has a job, and in about a year she may or may not qualify for that 80% mortgage because she won't be working her traditional job anymore. So sometimes in different parts of our life, it might make sense to take on that mortgage so that you have access to it.
But for you, Matt, assuming you're still working, at any point, you could, say, start with a home equity line, make sure that can help you close a deal. And then if you wanted to, let's say, mitigate your interest costs, you could then start looking at, "Hey, do I want to wrap this up into..." Or let's say you want to make sure you have enough capital for the next deal, so two deals down the road, right? You're like, "Okay, I use my home equity line of credit," and most of that home equity line of credit is wrapped up to use for this current deal. What you might then do is you might go to the bank at that point and go, "Do you know what? To make sure I've got a little extra access to capital because this home equity line, I've used up quite a bit of it right now, I want to make sure that I'm nimble enough for the next deal."
At that point, that might be the time where you go back to your bank and say, "Hey, listen, can we wrap up as much of this into a traditional mortgage as we can in order to leave more room on my home equity line?" So that home equity line that was restricted to 65%, you've now opened up some of that other equity to get at your 80%. Now, just as an asterisk before we dig in further, keep in mind, friends, we've never... I know I've never been in this scenario, guys, I think I can speak for all of you, where we've used 80% of our primary residence equity, so this is very out there, it's more of scenario-based, possibility-based.
So just be cautious because having some equity in your home that you have, especially in a market like we're seeing right now where things are a little bit scary, we're not really sure what's happening in the economy, just don't put yourself in a position where you've stretched yourself so thin that all of that equity you've built up in your own primary residence is now held hostage in some investments, especially if maybe one of those investments doesn't work out as you thought.
Jon Orr: Maybe I want to make this a little bit more clear, and because when I think about taking, say, that home equity line of credit and using it to buy that property and then rolling it in the mortgage, to me, the benefit right now is that my home equity line of credit interest rate is variable and it's usually a little higher than what you can lock in on a mortgage. So the benefit to me is saying, "Look, I could take that, roll it in a mortgage that keeps my interest lower, say, on a regular basis, I guess temporarily in a sense, not thinking, let's say, long term." But then it's like you said, it frees up some of the equity.
Now maybe go over that with some numbers for us to think about because you were saying combined we'd have 80% access, but still you just took that same kind of chunk, you put it over here, and how does that free up some extra capital there?
Kyle Pearce: Great question here. And just to make it clear, we're going to use, again, that $100,000 number, nice and easy. You can obviously extend those, adding zeros, doing whatever you need to do for your own situation. But if, let's say, Matt's house was appraised at $100,000, he went out, he got a 65% home equity line of credit. Now keeping in mind that's the maximum. Some banks might say, "Do you know what? We're actually only offering 50%."
So let's use that example. Let's say, okay, so Matt goes, he goes, "Hey, I've got access to $50,000." He goes out, he finds a deal, and the deal actually is exactly 50,000, right? Oh my gosh, what are the chances? So he's used all of his home equity line. Now he could, maybe he's fine, and he is like, "I'm not planning on doing any more deals, I'm just going to hang out doing this." One negative, as you mentioned, John, is that the interest rate's going to be higher, but one of the positives is he can pay it down as aggressively or he can go as low as interest-only on those payments. So that's one benefit of a home equity line that you don't get in a traditional mortgage.
But now Matt's losing sleep. A guy like Matt, he's losing sleep because he doesn't have access to capital in case the next deal rolls along. He knows he's got $50,000 of dead equity right now in his home. He's leveraged the other 50,000, right? And Matt's crazy, he didn't listen to my advice where Kyle said, "Hey, listen, don't leverage everything on your personal resonance here." Matt says, "I don't care, Kyle, I want just in case, you just never know when that deal's going to arrive."
So he goes into the bank and he says, "Listen, I've got this home equity line, I've got my job, and all of those things are still good, I can sustain these payments. What I'd like to do is I'd like to actually roll this into a traditional mortgage, and then what will you be able to give me as a home equity line of credit?" And what the bank's going to do is they're going to go, "Okay, well if you want us to roll that 50,000, which is half of your equity from your home, 50% loan-to-value, into a traditional mortgage, well, you've got 30% of the equity still available. And because that 30% does not go above that 65% maximum for your home equity line of credit, you've now opened the door to access to 30,000 more dollars.
Jon Orr: So let me say what I think is on everyone's mind, and forgive me for being a little slow. So with the 50,000, I had access in my home equity line of credit, let's say, by law or by rules, policies, at most 65% of my equity. And what you're saying is I kind of almost had 15% more kind of available even though the bank maybe didn't give it to me, but it's possible that I could access 15%, so $15,000 and then by me rolling it, or Matt rolling it, into the equity, we still got that 50,000 goes in there, at most, 80%, so $80,000 is available to borrow. That's a 30,000, and that's 15,000 more than the 15,000 I kind of had access to.
So I see now where I now have access to possibly 30,000, but that would bring me right to the top of my 80% loan-to-value versus what I had before that, which was only available 15,000 more.
Kyle Pearce: Yep, absolutely. And in that case, obviously we're using really small numbers. Some people might be like, "My personal line of credit is $20,000," or some people have $30,000 personal lines. So obviously these numbers are much smaller than you'd probably be dealing with if you were serious about this discussion. But one thing I also want to keep in mind, and this is an advantage for the home equity route on things, is that one thing you will not be able to do, I say will not, talk to your accountant, talk to your fiduciary, we are not advisors here for you, but one thing I know that becomes very tricky would be trying to claim the interest as an expense on the investment that you've made if you're using those personal funds. Whereas if you have a home equity line, that home equity line often sits, and I want to say always sits, in a separate account to your primary mortgage.
So right now I have a primary mortgage on my primary home, but I also have my home equity line, and I only use my home equity line of credit for investment. And by doing so, what I've done is I've created this world where this money is not associated with my personal mortgage and therefore I can call that interest. I can claim that that interest is actually being leveraged, it was created. The reason I pay that interest is in order to invest and earn money. So if I earn $100 over here on this investment property, but I paid $20 in interest, it's like I only earned $80, and therefore I'm only going to get taxed on $80 instead of $100, and still losing the interest.
Jon Orr: Yeah. If you bring it onto your personal property, it's going to be almost impossible to separate the two and go, "Hey, I'm using some of this to this, and some of this is my personal residence." And this brings up, I think I've heard of people getting a secondary mortgage that's purposely for just investment so they can keep that separate and claim the interest for tax purposes on their home, on that equity side and go, "Look, I'm going to lump this in over here, and that's just a secondary mortgage just so I can claim for tax purposes."
Matt Biggley: I think, guys, this speaks to how quickly this can get really complex and really confusing. I think some people may have to go back and listen to this one second time and rewind parts of it because it certainly gets complex quickly, and we've talked in the past about having great people on your team to be able to help you unpack this, to track this. And so that accountant is so essential to being able to bounce these ideas off of. It strikes me as you talked about the downside of having at home at credit is one downside is potentially paying a higher interest rate.
And I think the other one we didn't really talk about is just the temptation of seeing all that money sitting there and thinking that it's your play money or for some discretionary purchases for a trip for whatever it else it might be. It requires a lot of self-discipline to have that kind of cash sitting and you can see it in your account every time you log in, anytime I go into my banking, I'm like, "Oh, I have an existing home equity line of credit on another property I own, which I have not touched." But you see it all the time, and I think psychologically it's like you think you have more money than you do when you have that chunk sitting there. So that's a potential downside.
But what I want to actually get your opinion on next then is in the scenario where you do take on a mortgage, this is something I've really been debating, what kind of a mortgage term should you take on right now? And Canadians by and large default to this five-year mortgage term? Well, when I sold my house last summer, I had to break my mortgage, it cost me a penalty. It killed me to pay that penalty. My interest rate wasn't one of those sub-2s that some people have been bragging about that they've got, but I was doing okay.
And so now as I approach this new potential scenario, I guess it really comes out of your perspective on where rates are headed. So do I go with a six-month mortgage, a one-year term, a two-year term, or do I lock into that five-year term? So I want to get your thoughts on how would you even approach the term, and what are your thoughts on, of course, it's a little bit of guesswork here, but the trajectory of mortgage rates?
Kyle Pearce: It's really interesting because in the US they're blessed with these 30-year terms. When they get a mortgage, they're locking in. Now oftentimes their rate might appear higher than ours, but think of the security that you have. So now that rates have gone up in the US, their property market works and behaves a little differently than ours because of this fact. So there's a lot of people over there that are going like, "Okay, I'm in this house. I have a really low rate for 30 years, maybe it's 25 years left, I'm just going to stay here and keep doing what I'm doing." And they probably aren't going to have the same challenges that you might have here in Canada where if people were locked in at sub-2s, and they were buying property with the hopes that maybe it would just continue appraising at greater and greater amounts forever, that could create a little bit of shorter-term turmoil in our market.
So when you look at where rates are, they've risen significantly. So we were at historical lows. When you really think about that, and I never thought about this in the moment, I was just like, "I'm going to lock in my term, and I did it for five years when I did my term at sub-2 rate, so I was great, I was happy about that. But for a lot of other people, it was like people even sometimes were thinking, "To save a little bit of money, I'm going to take a five-year variable term," and this is at all-time historic lows. And basically what you're saying, whether you realized it or not, by taking a variable at historic lows is that history is only going to get crazier, we're going to go even lower than it's ever been.
Jon Orr: Well, another aspect of that, Kyle, and I think we chatted about this, was that it's possible at that time that you might take a variable mortgage because the amount you save might not be equal to or might be still better than the increases you're going to pay, it depends on that interest, that by the time the rates get this high, and probably no one was anticipating them to get this high but that fast to say, "By the time all this catches up to itself, we know they're going to go up from these historical lows, but I'm probably going to choose variable because they're not going to go that high that fast for me to see the value there."
Kyle Pearce: And look at where we are back at 4. When rates were around 5%, and this was back when I had bought my home and came to my first five-year term, and I used to have this discussion with a lot of friends just, "I'm renewing my... What do you guys think?" And at the time I was doing mortgages, I had my mortgage license, so I knew the rates and I knew what was going on, and at that time I used to always say, "Hey, an open variable is really a good fit because first of all, you can lock it in, if you're concerned that the market's going to shift or whatever it might be. But then also that rates tend to go by quarter percentages and it's usually over a long period of time." So when you did the math, it was exactly that, like you had said there, John.
So at historic lows though, you've got a massive disadvantage against you. You're like, "Are we going to make a new record or is it possible that maybe we pause here?" Which I think a lot of people just thought, "Well, if we pause here then I'll be fine," and unfortunately things turned around. So at this point though, Matt, if you do decide to do any part of a traditional mortgage moving forward, the thing you don't get with a home equity line is, first of all, you don't get preferred rates, you're going to get likely prime plus 0.5, it seems to be pretty common, prime plus, which is expensive.
So again, not great for the long term if you are going to do a deal, but if you are thinking about doing even a portion of this deal in some sort of traditional mortgage, right now maybe the time where you play with the idea of a variable. Now if the variable rate is not much lower than what you're going to get at a five-year or a three-year or a two-year, then maybe you don't.
But in my mind where we've come, we've blown through rates really fast, my gut is suggesting that, do you know what? A variable for the next little while is probably not going to be a bad move, assuming that there's enough of a spread there for you. Whereas if you're going to do a fixed and you just feel better about it, you might want to keep it a little bit shorter maybe one, two years. But again, when you do that, you now open yourself to the risk of are rates going to be higher by then? And sometimes too, the rates don't always coincide directly with the economy itself, it's really with the two to five to 10-year bonds, that's what's really going to be driving those rates.
So right now we're in this place where a lot of people are thinking the Fed might even make cuts in the US, which is going to have impact here. I'm guessing we'll probably hang out here for the next little while, but the Fed often makes mistakes, so they might push it a little bit harder, but if they go too hard, they've already gone really fast, really hard, so my thought is they might just pump the brakes for a little bit and let the dust settle. So I don't see as many dramatic hikes in the near future as we did in the past, but again, this is just speculation at this point
Matt Biggley: As we come to a conclusion here, definitely lots of thoughts swirling around my head here.
Jon Orr: Yeah, how are you feeling?
Matt Biggley: I feel like I have to go back and listen to this episode again and really digest it. My big takeaway though is there's an opportunity here to really have some balance and have some flexibility where you can achieve that peace of mind or that satisfaction with having a smaller mortgage, maybe not paying it off altogether with being an active investor, with having some of that dry powder, having some of those funds sitting on the sideline ready to deploy. Because that's important to me, I don't want to miss out on opportunities because everything is tied up in my house.
I have used HELOCs in the past with incredible creativity in order to create opportunities that have really been fruitful for us. And so I believe in the creativity and the power of the HELOC. I've just never been in this position where I could be mortgage free, and it's almost like Stockholm Syndrome, we're so used to paying it, we want to just continue to pay it because we always have.
Kyle Pearce: Yeah, it's interesting. I think one thing we didn't mention that I think is worth mentioning is that, ideally, knowing your situation, this is more on a personal situation scenario, knowing where you are, Matt, it's like having the tool there, which to me feels like the HELOC is the tool for you right now, having that tool there ready for you to leverage as your dry powder, if necessary, is great. And then if that opportunity does come, you've got it. But then keeping in mind as well that if you are already along your investment journey, which Matt I know you are, is then looking ahead to, "Are there any of my other actual investments out there that I can leverage in order to get that HELOC back down to zero?"
So that would be, I think, in a perfect world, you're going to start looking and going over to, "Hey, I've got this property over here, which is a pure investment property. It's a pure investment plan." I'm picturing your main street Airbnb, or we look to our North Shore portfolio and we start saying, "Which one is ripe for a refinance in order to get money out of those properties so that you can then bring your personal home equity line down to zero?"
So the real goal is you want to create this investment machine and those investments are going to still be growing, and then it's going to reduce your risk personally. So it's like increasing the risk over there, it's still interest, you're still paying interest, but just keeping in mind that keeping it away from you is always a benefit. But of course, in the short term, it will be a risk when you're leveraging some of your own capital. So I think if you can save some interest in the interim, but still keep access to that money, I think that's probably the best way for you to go. And then when those deals do come, what does that look like once it's all wrapped up and it's ready to go with its traditional mortgage or whatever the opportunity is that you're actually looking to put your capital into?
Jon Orr: Matt, are you leaning towards, at all, using... let's say whether you pay the mortgage off and now you have that chunk of payment that you have now monthly access to, or whether you get the mortgage and now you have a big chunk of change that you have access to, are you leaning towards diversifying a little bit in terms of away from real estate or are you looking at going, "Should I kind of venture into indexed bonds, or looking at the stock market as a place of maximizing my tax-free savings accounts or my RSP accounts to build that area up, and say stocks and bonds as a mix?" Or are you saying, "No matter what I do, I think I'm going to move my money into real estate?" I know this is a personal question, but we're kind of riffing here.
Matt Biggley: Yeah, I'm excited for I think next episode when we're going to talk about maybe some other investment opportunities beyond real estate, but I do believe in specializing. In our real estate investing, we specialize in multifamily buy and hold, that's what we specialize in. So as an investor, I have largely, I am overwhelmingly in real estate, and admittedly could use some diversification. So I think most definitely you guys have gotten a headstart on whole life insurance, although not an investment, a really interesting tool. And so that's something that I plan to pursue. And definitely even my kids' RSPs right now are sitting in cash, I pulled them out during the pandemic, and then I've just been... I don't want to cautious, lazy, whatever it is in terms of how to deploy those because of such market volatility.
So I very much want to recreate... Kyle and I have had a number of conversations recently on how do I recreate what that teacher's pension would've been for me with a really, really safe side of the portfolio because real estate has been, my goodness, it has been the tool, the vehicle for almost all of my wealth creation. However, I recognize that I should be better diversified than I currently am.
Kyle Pearce: I love it. That's super smart, and I think that's kind of where all of our heads have been, at least in more recent times. I turned 40 this year, I finally joined these other two guys, so I'm now in the club and I'm like, "Wow, this is what it feels like to be in your 40s." And now suddenly I'm looking down the road to going, "Oh, I never really thought of investing as maintaining or maybe having a even better lifestyle, let's say, when you do retire."
One thing that I think is on your mind when you think about those things is you're going to have a lot more time on your hands if you truly retire, I don't think I ever will, I don't think either of you two will ever truly retire, you're going to have these passion projects, which is investing, and for John and I doing all of the math stuff that we do, all that geekery. So I think that's always going to be there, but with more time and freedom comes more spending and more cost.
Matt Biggley: Yeah, for sure.
Kyle Pearce: So it makes you really think about that and say, "Okay, so what part of my portfolio should be in something that is..." I would like to say real estate is very predictable to us because of our experience with it, but the reality is that it's not nearly as predictable as say, a whole life policy, which we've properly structured and we've worked through as a tool to help us. So then the question becomes, what's the other thing? So when you think about your kids and think about their actual education fund, the challenges is you're trying to find something that's maybe, quote-unquote, "more secure" according to other people, but you are actually not feeling very secure because you're not as familiar with it. So we'll be chatting more about this on future episodes.
Matt, I want to thank you for an awesome question here. I think we all kind of rift on many different ideas. There's no one way to do it. I think my big takeaway for this episode is you really have to look at your scenario and you really have to think about what's going to... Again, we always talk about what's going to help you sleep at night, but ultimately at the end of the day is when you look at that opportunity, and for this case, you're trying to keep your opportunity open or your door for opportunity open, just is there a way that you can do it in a way that's not going to cost you anything initially and leave the door open so that when something does land in your lap, you can act on it?
And I think it sounds like you're probably going to go more towards that home equity line. But who knows, maybe you want to have that little traditional mortgage going too. Just again, keep that routine going. It sounds like you really liked it, Matt.
Matt Biggley: I just want to have the... What's the party called when you pay off your mortgage? There's a themed party. What are they called?
Jon Orr: Yeah, somebody's going to be screaming at us right now through their earphones.
Matt Biggley: I just want to have a reason to have a party. So maybe I take a small mortgage or maybe you take a small mortgage, pay it off, and then do the same thing over and over again so you could have multiple parties.
Jon Orr: Party, yeah. It's just a party central, party inaudible.
Matt Biggley: Oh, good. He's looking it up.
Jon Orr: Right now as we're speaking.
Kyle Pearce: It's like seven different ways to pay off your mortgage. One said a mortgage burning party.
Matt Biggley: Mortgage burning. Do you burn your banker?
Kyle Pearce: Yeah, I think you take your contract to the charge on your home, you could throw it and burn it-
Jon Orr: Don't burn your house.
Kyle Pearce: Whatever makes you feel good.
Jon Orr: All right, folks, thanks for joining us on this episode of The Invested Teacher Podcast. If you haven't done so already, hit the Subscribe button, and you'll get access to notifications to all the episodes as we publish them on Wednesdays. They'll just pop right in your podcast player there and say, "Hey, there's a new episode," and share it with your friends, your family. We're trying to spread discussion and insight into the world of wealth building and investing, so spread this around, we would love that, and don't forget to leave a review right in your podcast player there it helps spread the word as well, not through you and through the algorithm as we say. So thanks, friends. You can also find us on all social media at Invested Teacher.
Matt Biggley: All links, resources and transcripts from this episode can be found over on our website, that's investedteacher.com/episode17.
Again, investedteacher.com/episode 17.
Kyle Pearce: Remember my friends over on the investedteacher.com website we've got all kinds of resources. We've got our blueprint. We also have our joint venture form where you can just let us know your name, your email, and just a few details of what you are thinking about investing in, and we will follow up with you in the very near future. You can head over to invested teacher.com/jv to check that out.
Jon Orr: All right, Invested students, class dismissed.
Matt Biggley: This is a reminder that this content is for informational purposes only, you should not construe any of it as legal, tax, investment, financial, or other advice.
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