3 Steps Mortgage Paydown Strategy That Could Save Your Real Estate Investments

ByOak Ville Rising Real Estate

Let’s discuss something that might save your financial future: mortgage paydown. Sounds simple, right? But if you’re a real estate investor—whether you’re new, intermediate, or just someone trying to hold on in this challenging market—you need to understand the power of this concept. And trust me, it’s not just for the pros.

By the time you finish reading this, you’ll know how to use mortgage paydown to make smarter investment decisions, even when the numbers seem stacked against you. Ready? Let’s dive in.

Why Mortgage Paydown Matters (Especially Now)

The real estate market has been a rollercoaster. Interest rates hit historical lows only to spike back up, leaving many investors scrambling. If you’re like me, you’ve probably faced moments of panic—negative cash flow, falling property values, and tough decisions about holding or selling.

Here’s where mortgage paydown comes in. At its core, it’s reducing your mortgage balance over time. If you’re renting out your property, your tenants are essentially footing the bill for your mortgage. Sounds great, right? But it’s more than just a feel-good concept; it’s a critical metric for determining whether your investment makes sense long-term.

The Shocking Truth About Negative Cash Flow

Let me be honest with you: I’ve been there. One of my properties in Toronto, purchased in 2018 for $488,000, is now worth around $445,000. That’s a massive paper loss. And to make matters worse, I’m losing $700 monthly in negative cash flow. Ouch.

But before you throw in the towel, consider this: mortgage paydown could still make that property worth holding onto. How? By factoring in the principal paydown portion of your mortgage payments. Let me show you how it works.

Step-by-Step: How to Calculate Mortgage Paydown

Step 1: Use a Mortgage Calculator

Start by plugging your property details into a mortgage calculator. This will give you a breakdown of your monthly payment into two parts:

  • Principal (the amount reducing your mortgage balance)
  • Interest (what you pay the bank for borrowing money)

For example:

  • Property purchase price: $488,000
  • Down payment: $122,000 (25%)
  • Mortgage: $366,000
  • Interest rate: 6.69%
  • Monthly payment: $2,494

Step 2: Determine Annual Principal Paydown

Using the calculator, let’s say your annual principal paydown is $4,500. That means that, over 12 months, your tenants will reduce your mortgage by $375 per month.

Step 3: Offset Negative Cash Flow

If you’re losing $700 per month in cash flow, subtract the $375 from your mortgage paydown:

  • $700 (negative cash flow) – $375 (monthly principal paydown) = $325 loss

While it’s still a loss, it’s significantly smaller when you factor in the equity you’re building through mortgage paydown.

Should You Hold or Sell? Here’s How to Decide

Now that you understand the numbers, it’s decision time. Here’s how I approach it:

  1. Assess Your Financial Staying Power: Can you afford the negative cash flow for the next few years? Holding onto the property might make sense if you’re in a strong financial position. Remember, real estate markets (especially in cities like Toronto) tend to rebound.
  2. Consider Long-Term Gains Over 10-20 years, mortgage paydown can significantly increase your equity. Even if property values stay flat, your mortgage will eventually shrink, giving you a substantial return when you sell.
  3. When to Cut Your Losses If the monthly loss is unsustainable or causing financial stress, selling is your best option. Taking a loss is painful, but sometimes it’s the most brilliant move.

Why Mortgage Paydown Is Making a Comeback

In a market where appreciation has stalled, investors are returning to basics. Mortgage paydown offers a tangible, predictable way to measure your property’s value over time. It’s not flashy, but it’s reliable—and in today’s volatile market, that’s what we need.

Final Thoughts: Can You Weather the Storm?

Being a real estate investor isn’t always glamorous. Sometimes, it’s about making tough choices and holding on through the hard times. But understanding tools like mortgage paydown can give you a clearer picture of your investments—and the confidence to make the right decisions.

If you’re facing a tough choice about holding or selling, remember: you’re not alone. I’ve been there, and so have countless others. The key is running the numbers, staying informed, and staying resilient.