Mortgage-free in 5 years?

[ten_eighteen]

Did anyone else read this article in the Star about the guy that paid off his $180,000 mortgage in 5 years?

http://www.thestar.com/article/530653

It seemed interesting at first... but didn't really say much about how he did it except that his salary increased and he minimized his monthly expenses.

Somehow, I think for most people even if they did that it would take more than 5 years....

 

[AKS]

His income must be over 55k (probably 60k/yr). Assuming after taxes income of 55k is 43600 (600 for health tax). If he spends 7k a year he will save up 36k. 36kx5=180k. 7K a year assumes 1800 in property taxes and 2400 maintenance fee and $233 for living expense (food, travel, hydro)

 

[TKTKTK]

His income must be over 55k (probably 60k/yr). Assuming after taxes income of 55k is 43600 (600 for health tax). If he spends 7k a year he will save up 36k. 36kx5=180k. 7K a year assumes 1800 in property taxes and 2400 maintenance fee and $233 for living expense (food, travel, hydro)

$233/month for living expenses seems ridiculous. I spend nearly that in groceries - and it's not like I'm eating steak and lobster.

I also question the wisdom of rushing through the lowest interest rate loan he'll ever likely get - surely there's an investment product left standing that could net him a greater return? (Obviously a couple years ago this would have been more of a no-brainer)

 

[Bloor West Villager]

The article says he's made a six-figure salary for about 2 years now. Coupled with responsible spending, this isn't a stretch.

 

[cdr108]

I commend his achievement but it's unrealistic for most people.

He doesn't disclose his salary but he does make at least six figure income.

Here's how he paid down his $180,000 mortgage in 5 years from the figures published in the article:
- year 1: paid $15,400 mortgage payments;
- year 2: paid $15,400 mortgage payments;
- year 3: paid $15,400 mortgage payments;
- year 4: paid $15,400 mortgage payments plus $27,000 lump sum payment;
- year 5: paid $15,400 mortgage payments plus $108,000 lump sum payment.

Based on these figures, he was able to allocate at least $42,400+ towards his accomodations. If we use the conventional ratio of 32% gross income toward accomodation, then he makes an annual salary of $140,000. That's almost 3x the average FAMILY income.

He bought in March 2001 with a purchase price of $274,000 (condo registered on Oct. 1, 2003) so he bought a property 2x his income which is below the conventional 3x income ratio.

Unfortunately the price of RE currently is 5x income. It would be wonderful if we all could buy a home for 2x income.

 

[cdr108]

I also question the wisdom of rushing through the lowest interest rate loan he'll ever likely get - surely there's an investment product left standing that could net him a greater return? (Obviously a couple years ago this would have been more of a no-brainer)

Personally, I think it was very smart of him to pay off his principal home since these mortgage payments are not tax deductible.

As he stated, he can take advantage of any real estate correction and buy an income property and probably still take advantage of relatively low interest rates.

 

[AKS]

I commend his achievement but it's unrealistic for most people.

He doesn't disclose his salary but he does make at least six figure income.

yea, I don't think this applies to most people. I don't know many that make 6 digit incomes. Most make 5 digits. Following his 6 digit income, it would take normal people 2-4 years to earn that much.

 

[Alvar]

This guy did amazingly well. However, was he not living at home, probably rent-free, while the condo was being built? And, true, he did buy at a good time in terms of the price he paid. To buy the same unit today would be considerably more, yet salaries have not gone up as much. Good on him. He does appear to be careful with his money.

 

[cabbagetowner]

sounds like the smith manoeuvre, which would have been crippling in this financial market.

 

[grey]

You can also use a debt-conversion strategy where you borrow based on the equity of your home and invest that money -- mortgage debt is not tax deductible, but investment debt is, so you can use the government tax refunds for your investments to pay down your mortgage faster. Plus, you end up with a nice portfolio to boot (i.e. for retirement, which most Canadians wouldn't start investing for until their mortgage debt is paid off, which costs you years of compounding interest).

Leverage™: It's how the rich keep getting richer.

 

[borisp]

i just couldn't live like that... i know people like this... they put aside their whole paycheck and complain how they have no money...

 

[APM]

LOL. A friend of mine just told me they had a story about him in the star. I look at it and see its him. I know I was reading about it on here. And now I found it. We have been friends since we were kids. Lost contact years ago and he found me on facebook.

 

[Chuck]

You can also use a debt-conversion strategy where you borrow based on the equity of your home and invest that money -- mortgage debt is not tax deductible, but investment debt is, so you can use the government tax refunds for your investments to pay down your mortgage faster. Plus, you end up with a nice portfolio to boot (i.e. for retirement, which most Canadians wouldn't start investing for until their mortgage debt is paid off, which costs you years of compounding interest).

Leverageâ„¢: It's how the rich keep getting richer.

So in other words, you believe that it would be wise for one to take equity out of their home, which could represent the only financial security that they have, and invest it in the stock market and risk a loss? Imagine if someone had listened to you over the summer and lost 50% of their investment account!!! Not only would they have lost thousands, but they'd now have a mortgage to pay off as well. Pure genius!