Is Paying Down Your Mortgage Delaying Your Retirement?

The article linked below written by Rob Carrick of the Globe and Mail looks at whether homeowners are better off paying down their home mortgage or using that cash to invest.

According to the article the key determinant is whether the rate of return on your investments exceeds the interest rate on your mortgage.  

Here it the article:

Saving for retirement beats paying down your mortgage.

There – a long-standing debate in Canadian personal finance is settled. To build wealth in today’s low interest rate world, divert money you were going to use to pay down your mortgage balance to your registered retirement savings plan or tax-free savings account.

This is the conclusion of a report to be issued Thursday called “Mortgages or Margaritas: Is Paying Down Debt Putting Your Retirement at Risk?” Writer Jamie Golombek, managing director at CIBC Wealth Advisory Services, estimates that adding to your retirement fund instead of paying down debt can in some cases make you richer by tens of thousands of dollars.

There’s a rule that guides the mortgage paydown versus retirement investing debate: If a realistic investment return in an RRSP or TFSA is higher than the interest rate on your debt, then you’re better off investing. With mortgage rates falling from already low levels in 2015, the investing advantage over a mortgage paydown has never been more pronounced.

“We have the lowest interest rates we’ve seen in our entire lives, and yet we see people focused, obsessed almost, on paying down debt,” Mr. Golombek said. “Yes, it’s comfortable and easy. But at the end of the day, is it short-sighted?”

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Stacey Chudley

Stacey Chudley

CENTURY 21 Westman Realty Ltd.
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