# Mortgage vs. RRSP with an RESP twist?



## crazyjackcsa (Aug 8, 2010)

Here's where I'm at: 

My mortgage is up for renewal in less than six months. I'm currently at 4.7%. I'm looking to reset down to around 2.7% on a variable. Over the past 5 years we've hammered away at the mortgage, cutting it in about half. 

Family income is only around $60k gross. Two kids. Mortgage is down to $58k on a house valued at $217k. Very small DC pensions. I'm 33.

Here's what I'm toying with: Instead of using the reduced interest rate to hammer at my mortgage and have it paid off in 5 years, I'm thinking of pushing it out as far as I can, 25-30 years. 

I would take the difference (about $9k) and put it into my RRSP (tonnes of room) then I would take the refund (around $1,800) and dump it into the RESP. That way I could get 20% on that again.

So, 9k would garner an extra 2k in refunds and top ups. What do you think? Would I be better off just doing it in the TFSA?


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## marina628 (Dec 14, 2010)

There are a few things we probably need to know first such as do you have other debts ,how old are the kids and of course will you make more in future than you are today.


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## Guban (Jul 5, 2011)

My first thought is that your RRSP contribution doesn't get you much because your tax rate is not that high. As such, you might want to max out on getting the CESG from the kids' RESP. I'm not sure where you are in this, and how old the kids are, as you might have been parents at a very young age! Note that you don't have much time left in the year to get last year's grant. The $9k could represent $1.8k iin grants that would likely ultimately face no taxes in the hands of the kids.

Paying down your mortgage quickly is a very conservative thing to do also. You can't go too wrong by paying down debt as you are paying the interest using after tax dollars.


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## Just a Guy (Mar 27, 2012)

RESPs offer you a guaranteed 20%+ return! I'd max them out (well, to the government contribution limits, not their max contribution amount) first.


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## crazyjackcsa (Aug 8, 2010)

There are no other debts. The "pillars of saving" are complete. The kids are 4 and 6. There is 20k in the RESP already. There is about the same in the DC pension inside the RRSP. Income is not expected to significantly rise anytime in the near future. 

My thinking is like this:

If I put 10K into my TFSA I have 10k.
If I put 10k (I have space from others years) in the RESP I have $12k
If I put 10k into an RRSP and get a 20% refund I have 10k RRSP and 2K for the RESP which then equals $2,400. For a total of $12,400.

We are very disciplined, and there is very little chance of us not sticking to whatever plan we go with.


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## wendi1 (Oct 2, 2013)

Yes, but your analysis does not take into account the tax you will pay on your RSP when you take it out.

10K in your TFSA has no future tax burden.
12K in your RESP has no future tax burden (but if your kids do not use it, you will have to pay back the 2K). 
Your 10K in your RRSP has a future tax burden that depends on your income at that time, but could easily be more than the 2K you have avoided this year (because you make so little money).

Sorry to overcomplicate things - the RESP is a very good option. But I think you underestimate the value of a paid-off mortgage - it frees up cash flow and calms the nerves...

For me, it's never all or nothing. Have some emergency money in your TFSA, or save for your next car, or whatever. Have some money in the RESP (but this is even better if you can get the grandparents to chip in). Don't let the mortgage go too long - how long do you want to be shackled to that filthy thing? Certainly not until you're 63...


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## crazyjackcsa (Aug 8, 2010)

It's true, I haven't allowed for the tax I'll pay down the line. By and large, that's a complete unknown and totally dependent on future deposits and returns. That's why the RESP adds the wrinkle. Since I'm reinvesting the tax return into something else it adds another (tax free) benefit with an additional incentive.

To be clear: I have money in the TFSA. My next car is already paid for. So is my next major house repair. Vacations over the next 5 year are already covered. 

So long as rates are low (I'm thinking sub 3-3.5%,) why not try to take advantage of it? When the current era of low interest rates change, Stop the RRSP idea, flip back over to maxing out the mortgage and have it gone in 4 years.


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## Guban (Jul 5, 2011)

I completely understand your mortgage vs investment point. The mortgage rates are low, so you'd like to take a bit more of a risk and invest some money. I do want to emphasize that it is a bit of a risk, because you won't get a guaranteed return that will exceed your mortgage interest. Hence my previous point about being conservative and paying off debt.

I still don't understand why you would use your RRSP, however. You can hold the same stuff in an RESP - assuming you don't have one of those scholarship trust RESPs! Your math of $12k in RESPs and $12.4 in RRSPs and RESPs sounds like the former is a clear winner after tax. Remember that if the kids don't go on to post secondary education you can return the grant, and put the growth into your RRSP to continue to shelter it. Your point about future taxes being uncertain is true, but I would suggest that your income, and the corresponding tax rates will only likely go up, causing you even more problems within your RRSp.

All of this being said, you sound like you have your financial life very well put together. (Mortgage, TFSA, RESP, pensions, savings and debt). I am typing about relatively small matters in the grand scheme. I wish you and your young family the best, no matter what choice you make.


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## alingva (Aug 17, 2013)

crazyjackcsa said:


> I would take the difference (about $9k) and put it into my RRSP (tonnes of room) then I would take the refund (around $1,800) and dump it into the RESP. That way I could get 20% on that again.


 If you gross income is 60K you will get more than 20%...Your mortgage is 4.7% your RESP is 20%+, where should you put your money? 20% for me is more than 4.7% so the choice is easy


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## crazyjackcsa (Aug 8, 2010)

It's 60k household. Split nearly evenly between my wife and I. We've done the conservative thing over the last 5-years to knock the mortgage down. Now we're looking to take a little more risk and we aren't sure how best to do it.

We're not adding to our debt load, just paying it off slower at a much lower rate.


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## Jagas (Feb 11, 2013)

If you can get your mortgage rate down to 2.7% I would be all for easing up on your hammering of the mortgage balance. By easing up though I would not be considering extending it out as far as you can but rather just taking the opportunity to direct some of your funds to the other silo's you are considering in a balanced approach.


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## Taraz (Nov 24, 2013)

The RESP seems like the best investment, at least enough to get the match. 

I'd definitely change the mortgage to 2.7% (depending on any additional fees, of course). I don't see why you'd extend your mortgage out any more than you had to though, especially with a variable rate. Higher interest rates are coming; might as well pay it off before they get here. I like your 5 year payoff plan better. (It's not as though you lose the RRSP and TFSA room; you can always use it later.)


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## My Own Advisor (Sep 24, 2012)

"So long as rates are low (I'm thinking sub 3-3.5%,) why not try to take advantage of it?"

I hear ya.

In 2014, we hope to double down on our mortgage payments and anything left over will go into investments. We'll still invest, but with low rates, the mortgage could be killed sooner than later and we'll be debt free in another 8 years.


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