Mortgage Balance and Allocation to Bonds

[HaroldCrump]

*unless* we start to talk to about rental properties in which case there could be a strategy to keeping bonds non-registered and not applying to a mortgage.

Even then it wouldn't make sense because the YTM on the bonds will be lower than the fixed mortgage interest rates, for the same level of risk i.e. you would have to buy investment grade rated bonds to correspond with your rental property's ability to pay, and not junk bonds.
However, if you are renting out your property to deadbeats, drug dealers, etc. then sure buy high yield junk bonds accordingly.

While I agree with the argument that unregistered bonds don't make sense while having a mortgage, the actual investment results for the last few years (since 2008, let's say) has been the opposite.
Buying bonds between 2008 and 2010 (registered or non-registered), while being on a variable rate mortgage would have been a good strategy for most individuals.

[jet powder]

Young&Ambitious

Good point & I think it should be a rule that applies most of the time but sometimes I think it is good to break the rule

Capital gains & losses can occure with bonds so in some instances it might be best to be held outside a regestered account.

GICs I think are best suited to registered accounts but Iam not sure if it is always the best rule, an exception to the rule i.e., if someone that has earned no income for the year, might want to earn the basic examption which could be interest, Why earn it inside an RRSP if @ somepoint tax will be paid on it when the money earned wont be taxed.

Then it can even get more complicated because @ somepoint it might be best to have more money in an RRSP so the interest can grow tax free.

[sharbit]

Seems relatively pointless. Even with variable rate you have to go so far out time wise it's silly. I'd opt for prefferds in place of bonds right now unless you need the liquidity.

Unless you want to go foreign. I hear Greek bonds pay well :P

[marina628]

I have enough in bonds now to retire my mortgage and until this year i never considered cashing any in to pay down the debt.I took about $40,000 out in this last 6 months to pay down on the 3.49% mortgage and I have the option to take it back and reinvest anytime.There is something to be said about being debt free ,maybe I am old school but I cannot wait until I have my mortgage paid off Feb 2016 ,you are all invited to the party !

[Eclectic12]

If my memory is correct I kinda remember Suzy Orman ( united states) telling someone not to take money out of the vechile that is similar to our RRSP (forget what they call it) because in the case of bankruptcy that money could not be touched.

If someone is holding bonds in a RRSP account & they are deep in debt & if the laws in canada keeps that money safe in bankruptcy maybe it is the best place for it. ( I dont know the law regarding this )

Actually, the bankrupcy protection for RRSPs are not the same in Canada as the US has for it's equivalent account.

The links below say only RRSP contributions over 12 months old are sure to be safe. Though this is still an improvement over prior to July 7, 2008 when only certain investments in the RRSP such as seg funds were protected from creditors in a bankrupcy.

http://www.davidsklar.com/blog/bankr...exemptions.php
http://jmortonmusings.blogspot.ca/20...ankruptcy.html


Cheers

[Young&Ambitious]

Hi HaroldCrump you are correct from a retaining income perspective as rental income and interest income are taxed at the same rates.

I was thinking more along the lines of one's ability to pull this money out of a rental property at a later time (eg. towards a principal residence) as I recall this having consequences. A bond would be much more liquid-able.