Should You Paydown Your Mortgage Fast on Your Income Property

According to recent research by the Canada Mortgage and Housing Corporation (CMHC), more Canadians are planning on paying down their mortgages sooner.
Three quarters of the participants in the CMHC research felt that it was “very important” to pay off their mortgages as soon as possible and 39% had a set payment higher than required.

So as a real estate investor, should you consider doing the same for your investment properties?

I believe that reducing your cost of lending (through lowering your interest cost) is something to consider regardless of the investment strategy you are following. This will help put more cash towards building equity in your investment property.

But should you accelerate, top up your payments and/or shorten you amortization?

I believe that the answer depends on your investment objectives and the type of strategy you are using to attain those objectives. For example, if you are using a short-term flip strategy, then focusing on paying your mortgage down is not the best use of funds.

If you are using a buy-and-hold strategy, then paying down your mortgage faster (through rental income) will help support that objective despite the short-term effects on cash flow.

Alternatively, if your focus is on maximizing short-term cash flow from your rental property, then a mortgage with stretched amortization, a low interest rate and regular payments, combined with deductible expenses, will help achieve that.

The implications to your total return on investment should be also considered as part of evaluating whether or not paying down your investment property mortgage faster is worth doing.

 

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