Home » Uncategorized » Investing vs. debt repayment

Investing vs. debt repayment

I’ve always struggled with the notion of good vs. bad debt. In theory, good debt is used to acquire appreciating assets or generate income. For example, student loans can be a wise investment if they help you acquire a marketable degree and increase your lifelong earning potential; that doesn’t mean it’s okay borrow exorbitant amounts to fund just any degree or to carry student loan debt into your 50s. Mortgages may be smart if you buy into a rising housing market and minimize borrowing costs by paying them off quickly. They don’t seem as smart if housing prices slip or interest rates rise or a job loss strains your monthly budget. So it seems that without proper planning, good debt can go bad very quickly…

I was pondering the above as I plan my financial outline for the year. I currently have 3 rental properties with outstanding mortgages on 2 of them. These mortgages seem to epitomize “good debt”. The interest rates are 1.69% and 1.89%, at or below the rate of inflation. Whatever interest I do pay is tax deductible. The LTV ratios are 0.48 and 0.31 respectively and the rents generated handily cover expenses. Despite this, I have an undeniable urge to pay down these mortgages in lieu of investing in stocks.

Perhaps my focus on debt repayment is an unwillingness to throw more money into a choppy stock market. Or my desire for early retirement is pushing me to view rental income as more dependable than potential stock gains. Given that Canada as a whole lost 5,700 jobs last month, I’m seeking the security of a lesser debt load. So perhaps this is the wrong decision, but I’ll be focusing on debt repayment for the next few months. Hopefully stocks will have bottomed out by the time I shift focus.


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