Pay Down The Mortgage or Top Up RRSP’s?
It’s a question many people ask themselves as tax season approaches: Pay down the mortgage or top up the RRSP?
Both are investments in the future – with mortgage pay-downs slashing future interest costs and registered retirement savings plans compounding your stash of cash.
Yes, you can do both, but that’s not necessarily the right solution for everyone.
The answer, experts say, depends on how much debt you’re carrying – not just in a mortgage, but on a car, credit cards and any other payments.
Click here for the full article in The Star.
Recovering From Debt
Working through multiple debts can seem like slogging through quicksand.
We’re told to line up our debts from highest interest rate to lowest. Tackle from the top and work our way down. But what if the card at the top also happens to have the biggest balance?
A typical example may look like this: You’ve got your maxed-out HBC card, because of the holidays, sitting at 29.9%. Summer travel costs linger around at 19.9% on your Visa. And there’s that growing balance from meals out and mindless shopping on the card you use most often, your MasterCard, at 11.9%.
I was looking at multiple debts similar to this, and I became quickly discouraged by the lack of progress, and overwhelmed by the string of debts still waiting in line. So, I tried the opposite approach. Instead of interest rates, I focused on balance – reordering debts from lowest balance to highest. I still paid the minimum payments on all outstanding loans, but the one with the smallest balance got everything else I could spare. When it was eliminated, I moved on to the second-lowest balance. I worked up the ladder instead of down – and was debt-free in slightly more than a year.
Click here for more in the Globe and Mail.
Using RRSP’s For Your Down Payment
For couples like Jodi and Julian Echakowitz in Toronto, getting the down payment to purchase their first home was a matter of using their RRSP funds to their best advantage.
In their case, it was withdrawing funds from their registered retirement savings plan to take part in the federal government’s Home Buyers’ Plan. Ten years later, Jodi says it was definitely the right decision. “We took money out of both our RRSP accounts so we could put a larger deposit down and avoid the mortgage insurance requirement,” she says.
This not only saved them the premium fees for insuring a high-ratio mortgage, but it also gave them the breathing room needed to get into a comfortable mortgage and reinstate their RRSP contributions over time.
The Home Buyers’ Plan is a popular investment vehicle because it allows eligible individuals to remove funds from their RRSP on a tax-free basis to purchase a first-time home, up to a limit of $25,000 per person. That means a couple could withdraw as much as $50,000 to put toward a home purchase.
Click here for more from the Times Colonist.