All you need is love…
And a solid financial plan! Often, your mortgage is a key part of your financial plan, especially here in the Lower Mainland. Let’s look at a crucial decision many people wrestle with…
RRSP vs. Mortgage:
Where should you direct your money? Part 1…
Many people are looking for a definitive answer to this illusive question. But the answer isn’t that simple: Each person has a unique set of circumstances, both personal and financial, that they must plan around. For the next two months, we will be looking at the difference between investing in RRSPs versus paying down a mortgage.
Rock Lefebvre, the vice-president of research and standards for the Certified General Accountants Association of Canada, in Ottawa, formed a financial plan in his younger years that saw him paying off his consumer debt and then his mortgage before beginning to invest. The goal for him was to pay off his mortgage early, so that he would be better able to invest.
“Some people might argue that’s not the most strategic approach, but my defence is that any unused RRSP contribution room can always be used in the future. It’s never lost,” he says.
But you should weigh the pros and cons of both options to see which is optimal for you and your money.
People often consider which “investment” will yield a better rate of return. Mortgages and RRSPs are no different. Cynthia Kett, a chartered professional accountant with Steward & Kett Financial Advisors, Inc., in Toronto, warns against becoming comfortable with low interest rates.
“If you have a mortgage balance that will need to be renewed upon maturity, think about the interest savings based on the renewal rate, not the current rate,” she explains.
Paying down your mortgage quicker, by utilizing extra mortgage payments, means you are actually paying down the principle amount, reducing both your future interest payments and the amount of tax you would have had to pay on the interest, since you are paying down your mortgage with after-tax dollars.
Mortgage rates are never permanently guaranteed to remain low. And neither are investment rates guaranteed to remain high. Even if you are guaranteed an 8% rate of return on your RRSP investments, fees and tax apply, meaning your rate of return may not be as good as you might assume.
But which option gives you a better tax benefit? In short, the answer depends on your tax bracket. People who are currently in a higher tax bracket, but who are expecting to be in a lower bracket when they retire, may benefit more from RRSP contributions.
“An RRSP is a tax deferral. It’s not actually free money,” Ms. Kett says. “You’re just paying it later instead of now, whereas the capital gains on your principal residence are going to be tax sheltered permanently.”
For many, the decision comes down to a simple question: which option makes you feel more comfortable? Which brings you greater relief? If one option offers you a greater comfort, you probably have your answer. However, I recommend you talk over these options with your mortgage broker or financial planner to make sure your choice lines up with your unique set of financial circumstances, ensuring that the peace you feel now will only continue to grow with time.
Next month, we will continue the discussion by looking at risks and financial flexibility – stay tuned!
Original article written for the Globe & Mail by Kira Vermond.
The End of February…
Can you believe it’s already the end of February? It’s been a bit crazy in the Best house since Christmas. I am trying to follow more of my passions these days. I have been travelling a fair bit, and I am always growing and nurturing my mortgage business. But one of my other passions is helping others find their passions and build their businesses.
To help me manage my time so that I am able to pursue all my passions, I have brought in an associate to work with me. Shannon Patterson will be helping me with the things that I don’t love and – thank goodness – taking care of paperwork. I am still a phone or e-mail away, but you may see e-mails from teamgina@mawest as well.
Business of the Month…
Dr. Jamie Hennessy, with Back2Health Chiropractic, is a Certified Strength and Conditioning Specialist with personal training and group fitness experience. Dr. Hennessy has a very thorough and patient-oriented approach to health care. He encourages individuals to be active in their own health optimization. His primary demographic is beginner to elite athletes; however, he also treats people of all ages from infants to elders.
He offers services ranging from treating acute/chronic injuries, to optimizing sport performance, to specialized soft tissue therapy. Dr. Hennessy also offers custom orthotics, therapeutic/stretching programs, and biomechanical balancing.
Dr. Hennessy truly cares for and about his patients. If you are fighting chronic pain or are currently looking for a new chiropractor, he’s your man. Book your appointment online with Dr. Hennessy today and get back to health!
Make the right decision for you!
This year, make sure you are on track for financial freedom. Ensure you are investing properly, and let me help you get the best mortgage for your individual needs. Sometimes, the right mortgage can make all the difference.