November 2019

Last month, I compared the merits of investing in an RRSP to a TFSA. Another question I’m often asked is whether you should pay down your mortgage or invest in an RRSP/TFSA. Some people say they don’t want to pay down their mortgage as it’s “free money!” They think they’ll be further ahead by investing in the equity markets.
Firstly, the stock markets won’t go up for ever. Sometimes they go down! Over the last six months, the overriding sentiment I’ve heard from investment advisors is one of caution. Secondly, despite interest rates being very low, the interest isn’t tax deductible, and you’re paying it in after tax dollars. Your mortgage won’t melt away if you don’t implement a plan to pay it down over the years. Being mortgage free is a pretty nice feeling.
When I was younger, my plan was try to reduce my mortgage and build a fund for my retirement. It was a way of having forced savings. I tried to put half of what I was saving in my RRSP and use the other half against my mortgage. There were many years I felt like I was climbing a huge mountain, with no chance of reaching the pinnacle.
Even with interest rates being so low, I give the same advice. Set a target for the cash you want to save, use half to pay down your mortgage and use the other half for your RRSP/TFSA.

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