Buying your home with a mortgage: the sensible long-term investment

Of all the ways to build wealth, buying your own home with a mortgage is one I consider among the most sensible, provided it is done carefully. The bank lends you money today on the strength of what you will earn tomorrow, and time then works in your favour on several fronts at once.

A loan on your future income

A mortgage is, in effect, an advance on the income you will earn over the coming decades, granted to buy property. That is why I suggest borrowing up to what you can genuinely afford for your own home, rather than buying something smaller than you need and topping up later. Two forces then reduce the weight of the loan over time.

The first is your income. Your mortgage payment is set by the loan, while your salary tends to rise over a career, at least with inflation and often a little more. The share of your income that goes to the mortgage therefore shrinks year after year, whereas rent generally follows inflation.

The second is the value of the home. As you repay the loan, the amount you owe goes down, and in a country where demand for housing stays strong, as it has in Canada, the value of the property has historically tended to keep pace with inflation or more. The debt therefore weighs less and less compared with what the home is worth.

An illustrative example

Take a household earning $150,000 a year that buys a home for $900,000 with a 20% down payment, and borrows $720,000 over 25 years at 5%. The monthly payment is about $4,210. If their income rises by 2.5% a year and the home's value by 2% a year, the mortgage takes about 34% of their gross income at the start, about 26% after ten years and about 21% after twenty. Over the same period, the debt goes from 80% of the home's value to about 49% after ten years and about 17% after twenty.

This example assumes a constant interest rate, which is not how things work in Canada, where the rate is usually fixed for a term of a few years and then renewed at the rate of the day. The figures are there to show the mechanism, not to predict anything.

How far to go

Borrowing to the full extent of your means does not mean borrowing beyond them. Before buying, keep an emergency fund of six to twelve months of expenses aside from your down payment, make sure your income is reasonably stable, and leave some room for a higher rate when the mortgage comes up for renewal. Banks will in any case check that you could still afford the payments at a rate higher than the one you are offered; this is the mortgage stress test.

It is also worth shopping around rather than accepting the first offer from your bank, whether directly or through a mortgage broker, and negotiating the conditions. Lenders often offer insurance with the mortgage; compare it with other ways of protecting your family before signing.

At retirement: downsizing

A family home often becomes too large once the children have left. Selling it and buying something smaller frees up capital that can supplement your retirement income, and for many people this is enough to fund a comfortable retirement. In the example above, if the home's value keeps growing by 2% a year, it would be worth about $1.48 million after 25 years, and moving to a home worth 60% of that would free roughly $590,000, before the costs of selling, buying and moving. In Canada, the gain on the sale of your principal residence is generally tax-free.

The figures are illustrative and do not predict future interest rates or property prices. General information, current as of October 2026; not mortgage or tax advice.