Should I Pay Down My Mortgage or Invest in the Market (Part 2 of 2)

In my last post, I discussed my perspective of whether to pay down your mortgage sooner with your extra cash flow, or whether to invest that money in the market. In this post, I thought I would share an alternative reason as to why I choose to invest in my RSP’s with extra cash flow rather then pay off my mortgage with that same amount of money. 

The strategy I’m referring too is to invest your extra cash flow into an RRSP on a monthly basis. Each deposit will go towards your total RRSP contribution for that year and thus create an annual tax deduction. If you are like most Canadians, you will then receive a tax refund sometime in the early part of the following year that you can then put directly against the principal of your mortgage. This strategy allows you to grow your RRSP and also pay down your mortgage sooner.

Your Take-Away:  Think of it this way. If you have $10,000 to put against your mortgage, why not put that into your RSP and create a tax deduction of $10,000? If you are in the highest tax bracket of 46%, you would receive a tax refund of $4,600 which you could then put directly into your mortgage. Right off the top you have turned your $10,000 into $14,600 and have both grown your RRSP and also reduced your mortgage debt.

In the end, sticking to your regular mortgage payment plan or paying it off sooner becomes a matter of preference and a decision based on “Opportunity Costs”. Only you can make that decision, but if you can handle a bit of debt and stay with your original plan, why not take advantage of a market that is largely “on sale” today?!?

Until next time, have a Fantastic Friday.

Chris

Should I Pay Down My Mortgage or Invest in the Market (Part 1 of 2)

One question I deal with on a regular basis is “Should I pay down my mortgage with excess cash flow or invest that money into the market?” There are definitely different schools of thoughts on this topic, so I thought I’d share my personal perspective.

With the cost of borrowing being so low today (call it 5.45% for a 5 year fixed mortgage), I’m confident that it is quite possible to earn a larger rate of return in the market then to pay off my mortgage sooner. Lately that doesn’t seem to be the case, however I’m still confident that I will earn a better return by investing in the market over a five year window, which is a typical term for most mortgage owners. A general rule of thumb for me is to ask myself if I can earn more then it costs me to borrow. If so, then I’ll take as much debt as I can.

Your Take-Away: This is clearly not a strategy that works for everyone, especially if you invest in GIC’s or Money Market accounts, because you won’t be returning a greater percentage then what you are paying for your mortgage. The other factor to consider is that if you are tremendously opposed to debt, there is no point holding extra debt if it’s going to bother you and always be in the back of your mind.

Until next time, have a Terrific Tuesday!

Chris

Financial Mistakes Couples Often Make - VIDEO

It makes my life much easier to find a qreat video to post, and this one is no exception.

David Bach was recently interviewed on The Today Show and discussed common financial mistakes that many couples make. Although this is an American based talk show, the information he provides can be tremendously useful for you in terms of credit card debt, spending habits, and tracking your expenses.

Enjoy!

Until next time, have a Terrific Tuesday.

Chris

Inadequate Life Insurance Leaves Spouse With Less - VIDEO

I came across this short video on YouTube talking about how much and what type of life insurance may make sense for you and your family.

What was very interesting was how much this reporter recommended each family consider insuring themselves for. The key he says is that there is no definitive answer for everyone, but that a true needs analysis be completed and reviewed on a regular basis. After all, how can you know how much coverage you need if you haven’t gone through the process of using a Financial Needs Analysis to help you determine that number.

Take a look at the below video to learn more about how much you need, how much your family could be out if something happened to the primary income earner, and what type of life insurance products are available.

This is a great life insurance summary in only one minute and 46 seconds.

Until next time, have a Magnificent Monday!

Chris