Now how’s that for a choice to make?
For those of you who are new around here, I don’t have much in terms of consumer debt. That ball and chain was given the heave ho a year and 4 months ago. The money I borrowed to buy my car last November was similarly paid off in March of this year. I have a small (interest free) revolving balance on my credit card, and the behemoth: my mortgage.
I was one of the young and foolish crew years ago who put a little bit down on a long term balance; 6% on a 35 year amortization to be more specific. CMHC insurance ate up half of my downpayment (blech). I didn’t really think anything of it. Didn’t everyone have to pay mortgage insurance? I mean, 20% down payments were only something you had once you were in your 40′s and had already owned a couple houses, right?
Yeah, I know.
Either way, I had my home on my little patch of land. I had adjusted my mortgage to an accelerated biweekly payment, which ratcheted my amortization down a few years. I figured if I could handle that, then I’d be okay when I renewed for 30 years if the rate went up a percentage point or two.
Then the government stepped in and tightened things up a bit. Gone were the zero down 35 and 40 year mortgages. Now if you were buying a home you had to cough up a minimum of 5% (check!), and you could only amortize it over a maximum of 25 years.
Last summer, a couple months after paying off my consumer debt, I ratcheted my biweekly mortgage payments up by 20%. This dropped my amortization down to approximately 20 years. If I could comfortably pay this amount, I figured I shouldn’t have a problem with either rate or amortization come renewal.
After a couple uncomfortable months of adjustment, I settled into my new repayment groove. It actually wasn’t too bad, and I enjoyed watching the balance of my mortgage drop faster than it had been previously.
I probably would have kept it up if it wasn’t for one fairly large, looming issue: too many of my assets are fixed. You see that Pac-Man shaped wedge on the chart below? You could say that it’s eating my net worth.
My home equity makes up almost 70% of my net worth, while my liquid assets make up less than 2%. From a liquidity standpoint that’s really scary. While I can accept that my net worth will rise and fall depending on external factors, that’s a pretty heavy asset allocation given to real estate right there. If I keep prioritizing it, its only going to get bigger.
So, I’m pulling the reins back on it a little bit. The additional money that was previously going to my mortgage is now going to be split between my cash and investments. I’m going to try it for a year and see how it goes. If I find that I’m lacking in the will power department, and the money ends up going to spending, I’ll reinstate the higher mortgage payments next summer. I’m mostly positive I’ll have the will power to put it where it needs to go though; I’ve done pretty well at moving money into my RRSPs on a consistent basis, and since I started my cash savings that’s been doing alright as well.
What does your net worth look like in terms of asset allocation? What do you think is optimal? If you were in this position, what would you do?
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