Investment and Retirement

Pay down your mortgage or contribute to your RRSP?

Have you talked to your clients about it?

Perform a financial needs analysis of your clients to better assess their financial situation.

Compare interest rates to the rate of return

Given the current economic context and its low interest rates, it is better to invest your money than to pay down your mortgage. This is especially true if the expected return on your investment is higher than your mortgage rate.

Example:

Scenario 1: Putting $10, 000 on your mortgage	Scenario 2: Investing $10,000
At an annual interest rate of 2%, you will save $200 per year	At a rate of return of 3%, you will earn $300.
By choosing to invest, you will put an extra $100 per year in your pocket.

Scenario 1: Putting $10, 000 on your mortgage

Scenario 2: Investing $10,000

At an annual interest rate of 2%,

you will save $200 per year

At a rate of return of 3%,

you will earn $300.

By choosing to invest, you will put an extra $100 per year in your pocket.

The RRSP or how to get a tax refund

Since your RRSP contribution entitles you to a tax refund, why not put this money on your mortgage?

This is a very interesting option, even if the expected returns on your RRSP are slightly lower than your mortgage rate.

And the TFSA?

Is it better to invest in a TFSA than to pay down your mortgage?

Not necessarily because it’s not easy to predict the return on a TFSA.

If you do invest in a TFSA, make sure that its expected return is higher than your mortgage rate.

With a TFSA, the returns are tax-free, but that also means you cannot deduct them from your tax return.

However, you can always cash out your TFSA to pay down your mortgage should your financial situation change.

Other factors to consider

To determine whether it is best to pay your mortgage or invest, consider the following:

your mortgage loan balance
your tax bracket
your tolerance to risk

You could also compromise and use your savings to pay down your mortgage as well as invest in your retirement.

If you have any questions about RRSPs, TFSAs, RRIFs and other plans, do not hesitate to contact your SSQ Insurance representative.

Note: This article is provided for information purposes only, since each client's situation is unique. It is not a substitute for professional legal or financial advice.