Should Paying Off The Mortgage Wait?

There is never a downside to paying off your mortgage because it means interest saved which means thousands more dollars in your pocket, however if you recently received a gov’t. tax refund there may be other factors to consider. 


If you take a $1400.00 tax refund and apply it to a typical mortgage at 6% amortized over 25 years you have just saved $38,000. In interest. Nothing wrong with that.


|However, with interest rates at 4.25% to 5.5% whether your variable rate or fixed term you might want to consider some other options.  Do you have any other forms of debt out there at higher rates of interest, credit card debt, car loans etc?  With credit card rates at 18-30% it makes sense to pay off all credit card debt first. \


Have you made any purchases on the don’t pay until plan… such as a plasma TV. with no payments until 2010.  Did you know that if you don’t pay off the loan before the due date that you will be hit with a 30% interest rate?


Depending on your tax rate it may be smarter to put the money into your RRSP.  If your earn over $75,000 per year up to and including $123,000. Per year your tax rate would be 43%. If you put the extra cash into your RRSP you will get back almost .50cents on the dollar.


Funding a child’s RESP might be a good idea. The gov’t. matches 20% up to your first $2500.00 contribution per year … a nice big  rate of return.


Another little trick you can use if you have a line of credit mortgage.  As you pay down the mortgage a line of credit becomes available.  If you apply your tax refund to your mortgage and re-borrow from your credit line and invest in mutual funds or stocks outside of an RRSP then your can deduct the interest cost of that loan because you are using it to create investment income.


This helps you to build wealth for the future plus you have converted that debt from non-tax deductible to tax deductible.






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