June 8, 2018

Mortgage Report – Debt is very, very bad. Unless it is very, very good.

Posted By: MortgageOutlet.ca

Could it be the perfect time to get some good debt and unlock the value in your home to invest in Toronto real estate?

I’ve mentioned in the past that I’m a risk averse person (my family has two Volvos!).  As such, I don’t like to carry a lot of debt. But the reality is, many people confuse good debt with bad debt.

Bad debt is associated with credit cards and consumable items (like a new car, watch or vacation).  Interest rates can range from 7.99% to 29.9% or more. This isn’t the type of debt you’d want to hold in the long term. Plus, the item purchased will depreciate over time (although the memories may be priceless).

Good debt is often called ‘leverage’ and it can unlock growth opportunities (like borrowing tax-deductible money from a mortgage at 2.99% and investing the funds in the stock market to yield returns of 8% or more). Many successful corporations use debt to build factories, fund research and development or invest.

Similarly, homeowners have the opportunity to unlock the value in their home via a mortgage refinance and to convert a stagnant asset into an investment opportunity.  They might have $500K or $1 million dollars (or more) in equity in their home – and they are not capitalizing on it. Their money and assets are not working for them.

As such, it could be the perfect time to get some good (mortgage) debt and invest in Toronto real estate.  This represents a great long-term opportunity, as our city has become a global gem and demand for housing will continue to grow for years to come.  Perhaps you’ve thought about buying an investment condo, or a cottage, or even a property for your children. Prices in many areas have decreased by 20% or more from last-year (who doesn’t love buying things on sale?!)

If you’re interested, speak with your Realtor and mortgage broker – and make sure to ask for tips on how to avoid the mortgage stress test (with good rates!) or to qualify for a mortgage on a low/no income – and start using some good debt to grow your income.