# Cashing in TFSA to pay off mortgage? Other options?



## kork (Jun 9, 2012)

Okay, Quick recap on my wife and my personal finances.

Maxed out TFSA's and RRSP's. Just getting started in un-registered investments. We've got $190k owing on our variable mortgage (currently 2.0%)

We've also been doubling up on our mortgage because psychologically, we want to pay it off. So we've come up with a few strategies.

*Strategy #1)*

A couple weeks ago we decided that when our mortgage is up for renewal, we'll amortize over 8 years and double our payments so it's done in 4 ballpark. Monthly payments will be high, but not unmanageable. 4 years, mortgage paid off.

_ADDED: Additionally, the goal here will be put an additional $10k against our mortgage in the next 10 months and when up for renewal, drop it another $50k or so so it'll be 4 years to pay off $130k or so. We'll continue to max out RRSP's and TFSA's along with unregistered accounts._

*Strategy #2) *

We cash in our TFSA's and possibly pay off the remaining cash so that in 10 months, we could be mortgage free thus freeing up some monthly. We'll have no TFSA anymore, but still maxed out RRSP's. New focus? rebuilding TFSA's but without the burden of a mortgage.

*NEW Strategy #3)*

Stop aggressively paying off the mortgage since money is cheap. Take out a loan from our line of credit (currently at 3.2%) or even take advantage of .97% introductory rate offers, Invest in un-registered investments and "hope" that the growth exceeds the cost of borrowing?

I've never been a fan of the strategy of borrowing to invest. But if I can leverage low borrowing costs with the ability to pay them off if they start to smell bad, is that a bad move?

I know it's a risk, but how much of a risk is it in the long term?

What would other members here do given the options? Input very much appreciated and valued.


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## OhGreatGuru (May 24, 2009)

I vote for Strategy No.2, provided you keep enough reserve for an emergency fund. What are you saving for if not to pay down debt or make a major (needed) purchase?

No.1 if you are dead-set on keeping your TFSA money for some other near-term purpose.

Definitely not No. 3.

PS: Or combine 1 & 2. Put half your TFSA's down on the mortgage; shorten the amortization to what you think you can manage; and keep the other half of the TFSA's.


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## Marc (Jan 16, 2015)

I'd vote for strategy #2. It's what I'm doing next year. My spouse and I have maxed out our TFSAs and are waiting for our mortgage term to come due next year. 

We will then evaluate whether we can earn a better rate of return in our TFSA against what the mortgage rate will be when we come to renewal time, and decided then. 

Right now, I'm leaning towards dumping our TFSA funds on the mortgage to be mortgage free sooner!


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## My Own Advisor (Sep 24, 2012)

How about Strategy #4 - once TFSAs are maxed out for 2016, and RRSPs are maxed out as well, take some money left over and start a non-reg. account and take a little bit a make lump sum payments on the mortgage.

Growing non-reg. portfolio and killing debt at 2%. Growth and reduce risk at the same time.

If you go with Strategy #2) - I suspect you've lost money in your TFSA this year so you're selling low and you'll need to rebuild the account value.

I hate debt but maxing out registered accounts and building a dividend war chest are also important to me.


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## kork (Jun 9, 2012)

My Own Advisor said:


> How about Strategy #4 - once TFSAs are maxed out for 2016, and RRSPs are maxed out as well, take some money left over and start a non-reg. account and take a little bit a make lump sum payments on the mortgage.
> 
> Growing non-reg. portfolio and killing debt at 2%. Growth and reduce risk at the same time.
> 
> ...


Sorry, I should confirm, Strategy #1 would still include maxing out TFSA's, RRSP's , and putting money into each of our unregistered accounts so I think it's pretty much the same thing.


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## Soon Forget (Mar 25, 2014)

kork said:


> Sorry, I should confirm, Strategy #1 would still include maxing out TFSA's, RRSP's , and putting money into each of our unregistered accounts so I think it's pretty much the same thing.


You've got a clear desire to get rid of the mortgage (ie. you considered #2), so what's this talk of taxable investing? Max the RRSPs and TFSAs because long-term tax-free growth is awesome, and dump the rest onto the mortgage. Sounds like this will get rid of the mortgage in less than 4 years based on what you said in #1, that's when you start the unregistered accounts.


Marc: if you're thinking about using your TFSA funds to pay off the mortgage, why didn't you use that money to pay down the mortgage in the first place? Or were you already prepaying the mortgage to the max first and putting the rest into TFSA since you couldn't apply it to the mortgage? Otherwise, it seems like you are changing your strategy because of the itch to be debt free. Speculating on future market returns sounds like a dangerous thing to do, and cashing all your investments may not be the most balanced approach.


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## Marc (Jan 16, 2015)

Soon Forget said:


> You've got a clear desire to get rid of the mortgage (ie. you considered #2), so what's this talk of taxable investing? Max the RRSPs and TFSAs because long-term tax-free growth is awesome, and dump the rest onto the mortgage. Sounds like this will get rid of the mortgage in less than 4 years based on what you said in #1, that's when you start the unregistered accounts.
> 
> 
> Marc: if you're thinking about using your TFSA funds to pay off the mortgage, why didn't you use that money to pay down the mortgage in the first place? Or were you already prepaying the mortgage to the max first and putting the rest into TFSA since you couldn't apply it to the mortgage? Otherwise, it seems like you are changing your strategy because of the itch to be debt free. Speculating on future market returns sounds like a dangerous thing to do, and cashing all your investments may not be the most balanced approach.



Yes, we've been maxing out prepayments on the mortgage and investing the rest in TFSA with the hopes of building up our funds at a better rate (last year was amazing, and thing year has been relatively flat with regards to returns). We've been 
conservative in investments in our TFSA so we haven't lost any of our contributions (our ytd return is +0.25%) but you're comments are duly noted. We need to rethink this.... Thanks!


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## Sampson (Apr 3, 2009)

I don't get it.

You have amassed a sizeable asset base, yet you it seems that you want to make all-or-none type decisions going forward? To me it doesn't make sense. Are you saying/acknowledging that you could have done better in the past, and that you believe with ore knowledge and education now that you will make better (more optimal) decisions going forward?

I know our strategy, and it isn't to try and hit-one out of the park.

Cash is cheap now. You have grown your money by investing, so why change this? 2% interest paid on your mortgage over the past 4-5 years? How much have your investments returned? Will your investments today earn more or less than 2%. If you need guarantees, then pay off the mortgage, but the fact that you have both RRSP and TFSAs well contributed towards tells me that you are able to tolerate a reasonable amount of risk. So what has changed? and why do you look to pay clear the mortgage now?


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## My Own Advisor (Sep 24, 2012)

I know for us, we were prepaying our mortgage big time over the last few years. That's because the rate was around 3% and our mortgage was fat. 

I itch to be debt free but cash is cheap now. Our mortgage will be 2% in another couple of months (new term). I suspect the annual return on our investments will be more than 2%. As long as I have a decent job, while debt sucks, having good, growing cash flow non-reg. after TFSA and RRSP is maxed makes sense to me.

I just don't think folks (myself included) who have worked hard to save up money in investments should use those investments to kill debt. 

If people want to kill debt that badly, don't invest the money and simply use cash savings to make your lump sum mortgage payments. Investing and saving are not the same thing in my book.

Rightly or wrongly we try to do a little bit of everything, invest, kill debt, save. I feel better about this because we are diluting our risk in many ways.


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## kork (Jun 9, 2012)

Sampson said:


> I don't get it.
> 
> You have amassed a sizeable asset base, yet you it seems that you want to make all-or-none type decisions going forward? To me it doesn't make sense. Are you saying/acknowledging that you could have done better in the past, and that you believe with ore knowledge and education now that you will make better (more optimal) decisions going forward?
> 
> ...


Emotionally, we want to be debt free. We want to know that the house is paid for and that our monthly expenses are more manageable. Same thing with the student loan years ago. Could have paid it off over 15 years, but instead, paid it off quickly. We don't like "monthly" payments. We'd rather buy something outright than pay it off over time and be committed to a monthly payment. That's just us.

The point of the thread was to say "here's a few options where on one side, we pay off the mortgage versus the other side which is, let's borrow against the mortgage to invest!"

What you're saying Sampson is to "maintain the course." Don't be to quick to pay off the mortgage.

But that's #1. With #1, I don't sacrifice registered investments or diversification really.

*Scenario #4*

Opt for a 10 year mortgage. Take the "extra payments" I would make towards a mortgage and put that towards unregistered investments while maxing TFSA's and RRSP's.

--

I "wish" there was an open variable mortgage that was 2% so that when it goes up, I could look at it and say... should we pay this off? That said, Perhaps locking in at 2.3% - 2.6% or so for 5 years wouldn't be a bad thing since in the end, we can set and forget. Maybe about $3k in extra payments for something locked in assuming the mortgage stays at 2% variable. After 5 years, if rates are back up to 5-6%, We can pay it off then...


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## tkirk62 (Jul 1, 2015)

I think if you can borrow at 3.2%, there are definitely options to beat that with investments. Plus if you have a high income you must keep in mind that you can deduct the interest you pay from your taxes. That drops your effective borrowing rate down further. 

Mathematically I think that strategy is the best. The trouble is that it seems like you would be uncomfortable with the debt, scared into selling if the investments were to drop a certain amount. On the other hand you also seem like one who knows your cashflow could handle it (since you are willing to double your mortgage payments), and would be willing to put that extra against the HELOC you used to invest.

Devote real thought to whether you'd be comfortable with borrowing to invest. Consider the tax deductions, what you would invest in, how you would feel and what you would do if the investments dropped, etc. If at the end you think you would be comfortable, that is mathematically the best option and would put you further to financial independence and wealth. But of course, "Emotionally, we want to be debt free". Math isn't emotions.


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## Soon Forget (Mar 25, 2014)

I don't think Sampson was saying to not be too quick paying off the mortgage. If that's where your risk tolerance is, then you should. I think his point was that up to this point you _haven't_ been putting every last dollar into the mortgage, so to do so now would be a change to your previous plan which was already pretty sensible.

I still don't understand why there is an interest in taxable investing while you carry the mortgage, unless your plan was to only pay minimum on the mortgage and extend it as long as possible. This isn't true for you - you have said you want to be mortgage free, as do I.

Why not max your RRSP (24K i'm assuming) and TFSAs (20K combined ongoing hopefully), and dump the rest onto the mortgage. This is 44k annually in tax-advantaged investing and also clearing the mortgage in less than 5 years. I know the prepayment privilege on our mortgage is so high that we don't get close to using it up after filling all of our tax-advantaged investing space. I suppose if you've done all that and used the maximum prepayment on the mortgage and *still* have money left over for the year then you could invest it in a taxable account. (If this is the case then your income and saving rates are high enough that you won't have any problem meeting your lifetime financial goals.)

I understand MOA's point about building taxable dividend cash flow, but once the mortgage is gone that *is* an automatic increase to your cash flow. In my opinion that's when taxable investing should start. It's not like this point is 20 years into the future, we're talking about 5 years or so.


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## peterk (May 16, 2010)

I would just keep maxing out TFSA and RRSP only, and put everything else against the mortgage. It keeps your capital/liquidity/safety net intact (2 maxed out TFSAs is a heck of a lot of mortgage payments, if you lost your jobs), pays down the mortgage faster than just the status quo, and gives another few years of easy peasy investing where you don't have to be bothered to keep track of unregistered accounts for tax purposes.


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## Spudd (Oct 11, 2011)

I agree with Soon Forget and peterk - max out the registered accounts and put any other money against the mortgage.


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## Karen (Jul 24, 2010)

I don't think it's a decision that should be made based on the financial aspect only. For me, there was a huge emotional lift from paying off my mortgage. I've had a lot of lucky breaks in my financial life, but nothing approached the pleasure that getting rid of my mortgage gave me - don't underestimate it!


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## RBull (Jan 20, 2013)

You have indicated the psychological part of being debt free as being important to you and your wife. This was the same with me and my wife and we dispensed with the mortgage in under 6 years at age 35, 21 years ago. There were few things in life that gave me more satisfaction and peace of mind than being mortgage/debt free. I suspect you may be the same. 

With all of the choices you're obviously in good shape to make any of the choices. Congratulations. 

I vote for #2 and #1 as second choice. Lower investment values now may be a price to pay for this strategy, however they may well be lower a year+ from now when you're able to invest even more. Definitely do not go with #3 since you don't like debt and why take the risk. 

Good luck.


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## Sampson (Apr 3, 2009)

kork said:


> But that's #1. With #1, I don't sacrifice registered investments or diversification really.
> 
> *Scenario #4*
> 
> Opt for a 10 year mortgage. Take the "extra payments" I would make towards a mortgage and put that towards unregistered investments while maxing TFSA's and RRSP's.


Fair enough. I can understand that the freedom afforded by paying the whole thing off would be very satisfying. You have never filled is in how your investments have been doing and how confident you are in your investment plan/strategy.

In my mind, the optimal strategy depends on your estimates for rate of return, and interest paid going forward. Almost certainly, any money put into global markets over the past 5 years has provided returns well in excess of the mortgage interest paid. Going forward, who know, but why bank the certain automatic return, and why not take the additional risk of putting monies into equity markets? Ultimately, the risk that your investments return less that the interest owed on the mortgages means only a small amount (nominal value). I don't get the sense you feel like your finances are out of control, on the contrary, your family is well positioned, and the mortgage will be paid off soon regardless.

Personally, I have never tried to predict or go with the optimal strategy. You can max out registered investments, top up mortgage payments AND invest in non-registered accounts. We have done this for the past 10 years, and although this is not the optimal strategy, actual I feel it is the lowest risk strategy. You have money in the markets in case, and you pay down the mortgage at an accelerated rate in case. I would keep it steady as she goes, even consider topping up your kids RESP above $2500/yr, and also consider putting money into RESPs for yourself. From previous conversations, you want to change careers in the future, and it never hurts to go back to school, even for fun. This boosts your tax-free investments, and makes it 'easier' to beat the interest paid against the mortgage.


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## CPA Candidate (Dec 15, 2013)

Keeping investing (in equities), don't put any extra money on the mortgage. Paying down debt has emotional appeal, but from a finance perspective the returns are fairly low. That being said, it is still preferable to investing in GICs or bonds.

I recall back in 2009, before I was into investing, I was making lump sum payments to my mortgage when the market was at epic lows. If I had a clue at the time and put it into basically any equity my returns would have been 5-10x larger.


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## carverman (Nov 8, 2010)

kork said:


> Okay, Quick recap on my wife and my personal finances.
> 
> Maxed out TFSA's and RRSP's. Just getting started in un-registered investments. We've got $190k owing on our variable mortgage (currently 2.0%)
> 
> ...


Here's my story: 
Being retired, living alone since 1994, mortgage free for the last 13years. Cashed in my RRSPs and took a bit tax hit in 2002, when I retired, but at least no mortgage payments since then, and I have saved a *BUNDLE IN MORTGAGE PAYMENTS, * even with variable rate 5 year terms with CIBC allowing me to put down 10% at the end of each term. 

I took out a 15 yr mortgage ($90K/$576 per month) in 1996 and paid it completely off in 6 years. 

Had I continued with making the mortgage payments and having to cope with a 33% reduced Nortel pension and just some CPP/OAS), I would have paid out (estimated $30k in interest at least until amortization (2010), about the amount of my RRSP in mortgage payment total interest) in any case.

While I have no RRSP any more (at almost 70), *I do own my own house outright, (not the bank)* and I still have a TFSA, to fall back on when there is any monthly crunch. 
I build it up as my budget allows.

*I vote for Strategy #2*. IF you have the money available, and don't need it right away for things like new roof AND have other sources of income, even at the lower borrowing rates, it is money that you don' have to borrow EVER! Right now most banks pay didly squat (PCFinancial pays about 1.3% on mine..my LOC charges closer to 5% on an unsecured line of credit.

I only started my TFSA when it first became available in 2009 (co-incidently when Nortel went bankrupt and cut my pension payments that were supposed to last until age 69), and inspite of that, I have built it up now substantially, over the last 6 years. Enough to pay for a new roof and other improvements to the property plus my own personal care which I will be needing soon.


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## Bowzer (Feb 25, 2015)

For me personally, there is nothing more I want in my financial life than to be in a mortgage-free home. I want to achieve it as a "life goal", and also the peace of mind that no matter what happens down the road, the home is mine, and I can hunker down however I need to and stay in my home. I'm also self-employed and I've "boom & busted" multiple times in my life, so I'm coming from that past experience. 

So my strategy is like your #2, basically. Attack the mortgage with everything, then work on investments after.


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## kork (Jun 9, 2012)

Okay, so now my mortgage is up for renewal. I'm looking at locking in for a 3 year fixed rate at 2.29%.

Up until now, we were looking to have a 10 year mortgage and double up payments. That would be about $3k a month and the mortgage could be paid off in around 5 years or so. YAY - mortgage free! good feeling!

However, after thinking about it, would we be better off to drag out the amortization period which would significantly lower our mortgage payment and allow us to have the extra $2500/month to invest in blue chip Dividend paying stocks?

After 3 years is up, if interest rates are uncomfortably higher, we could choose to "pay off" the mortgage at that point in full.

Also, because I have a home based business, I'm able to write off some of that mortgage interest while I have mortgage interest.

Thoughts?


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## redsgomarching (Mar 6, 2016)

kork said:


> Okay, so now my mortgage is up for renewal. I'm looking at locking in for a 3 year fixed rate at 2.29%.
> 
> Up until now, we were looking to have a 10 year mortgage and double up payments. That would be about $3k a month and the mortgage could be paid off in around 5 years or so. YAY - mortgage free! good feeling!
> 
> ...


if you need cash flow or feel that you can generate more in dividends vs interest paid then you can definitely do that. 
if your mortgage has non penalized lump sum prepayment options you can always utilize those to help pay it down faster.


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## kork (Jun 9, 2012)

I should also mention that our registered investments are maxed out. The Blue Chips are non Registered investments. We don't need the cashflow, but it seems like the only way to own BCE for example is by accepting the dividends...


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