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

Posted on August 22, 2008 at 11:58 am 
Filed Under Financial Markets, Financial Planning, Investment Planning, Mortgage Planning

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

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One Response to “Should I Pay Down My Mortgage or Invest in the Market (Part 2 of 2)”

  1. Should I Pay Down My Mortgage or Invest in the Market (Part 2 of 2) on August 22nd, 2008 12:05 pm

    […] Original post by Chris Karram […]

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