# should I pay down my mortgage



## tara88 (Dec 3, 2011)

Hello everyone.
I live in victoria BC and have 66000 thousand remaining on my mortgage. |My rate is 5percent with a maturity date October 2015. I could cash in my rrsp and after taxes put 20000 on my mortage. That would have it paid off completely by the time it matures. It matures Oct 2015. Theres currently 5 years 5 months remaining to have it all paid off at current rates and payment. 
I would pay about 12000 in taxes but save 2 years payments on the mortgage. Mortgage payments are bi-weekly at 14000 per year.
do you think it better to be mortgage free?


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## Karen (Jul 24, 2010)

How old are you Tara? In other words, how long would you have to rebuild your RRSP? I know from my own experience what a wonderful feeling it is to be mortgage free, but I'd also be hesitant to cash in an RRSP unless you're quite young and have lots of time to rebuild it. I'm sure someone else will give you some more technical advice, but if you're a youngish person, I would say get rid of the mortgage. The money you no longer spend on mortgage payments can build up your RRSP again very quickly.


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## tara88 (Dec 3, 2011)

I'm 50. I don't have any other debt though - just the mortage. I would be cashing in my entire rrsp. I would have to pay taxes on the rrsp when I begin to use it anyway. Or so I thought. My rrsp is in a five year GIC. Who knows what the rules will be when I'm 65.


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## the-royal-mail (Dec 11, 2009)

No. You need your RRSP for your retirement! The purpose of an RRSP is not to pay off mortgages.

If you want to pay off your mortgage, save the cash, spend less, live more frugally and then pay it off in chunks. 

You also need to check the rules of your mortgages. Not all of them will allow you to pay them off like that without making you pay some bogus $$$$ penalty. Typically they have an upper limit of how much you can pay every year. If you pay more than that they'll charge a penalty.

For that reason I'm out.


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## Karen (Jul 24, 2010)

I may have misinterpreted Tara's e-mail, but I thought she was asking whether to pay off her mortgage when it expires in 2015. If that's the case, there would be no penalty. I realize it's not an easy decision to make, but I didn't start investing in an RRSP until I was 40, and by the time I have to convert it to a RRIF it will be worth about $450,000 - far more than I will need on top of my other income. So, as much as I understand the point you're making, TRM, if Tara is relatively young, my advice remains the same. As I recall saying once in another thread, one of the happiest days of my life was the day I made my last mortgage payment!


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## mind_business (Sep 24, 2011)

I agree with TRM. We recently paid off our mortgage, and it's given us a huge sense of relief, security, and has afforded us to save a lot of money for retirement, and vacations. However, I would not give up RRSP money to become Mortgage free. 

We took advantage of our Bank's Mortgage rules on maximum payments. You might want to investigate one of, or all of the following (assuming your mortgage has the same rules as ours did):

1) double up on your payments. If your regular payment is $539 every 2 weeks, doubling you payments would allow you to pay $1078 every 2 weeks. The lion's share of your payment will go towards the principal. 

2) Pay an additional 10% on top of your double up payments. This would bring your payment to $1186 every 2 weeks.

3) Take advantage of the 10% balloon payment on top of the original amount of the mortgage. You can do this once in every 12 month pay period without penalty. This payment will go entirely towards the principal.

We had a Fixed Rate Closed Mortgage with the Royal Bank.

If you can't afford to max out all three options above, then see what will work for you. I also recommend visiting your budget to reduce expenses. A bit of financial frugality for a few years is more than worth the sense of security after the mortgage is paid off.


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## Karen (Jul 24, 2010)

I bow to the greater expertise of the-royal-mail and mind_business, Tara; there is no question that they are more knowledgable about financial matters than I am. But, rightly or wrongly, I still feel that your decision should depend on your personal circumstances.

I paid off my mortgage (with a lump sum acquired by exercising employee stock options) shortly before I turned forty, and that allowed me to open an RRSP and contribute the maximum amount every year for the next 23 years when I retired, something I definitely wouldn't have been able to do if I'd had make mortgage payments to make. Math not being one of my strong points, I wouldn't have a clue how to work out whether I'd have been better off to use my income over those years to make mortgage payments or to contribute to an RRSP, but I'm certainly happy with the decision I made.


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## mind_business (Sep 24, 2011)

LOL, I have a feeling you are way more financially knowledgeable than I am Karen. It's just simply my opinion. 

If a person was to do an indepth calculation on the amount of interest payments Tara would save over the remaining Term of the Mortgage, compared to the loss of tax-deferred growth within the RRSP, and the improved savings rate ... it might be worth it. Maybe someone will take a crack at it


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## Karen (Jul 24, 2010)

I have a basic - very basic - understanding of financial matters, mind_business, but it's all theoretical! Since the long ago days when I divorced my penny-mining-stock, mining promotor ex-husband, left my job with a group of Vancouver Stock Exchange speculative mining companies, and became a very staid public servant, I've never invested in anything but GICs! So I was assuming - and still am - that you're more of an expert than I am!


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## slacker (Mar 8, 2010)

The thing with RRSP withdrawal is that it's permanent. You can't recontribute for that room. That may not matter if Tara is relatively close to withdrawal from her RRSP anyway. So it all depends on what her retirement plans are. It also depends on what kind of return she has on the RRSP. In anycase, it doesn't sound like a very big difference.


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## tara88 (Dec 3, 2011)

Thanks so much for your replies.
I am in fact fifty. I don't have a lot in my rrsp's so I was thinking of putting 12000 on the mortgage and my ex would put another 8000 on it. I said I had twenty to simplify things. I don't have a lot in my rrsp -18,000. It's in a five year GIC All my money has been invested in my house which has doubled in value over the last 12 years and probably hold it's value because of it's location just outside of Victoria BC.
I suppose the safest thing to do is go and see a financial/budget advisor who doesn't have any self interest in the investment field. 
Once again thanks


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## londoncalling (Sep 17, 2011)

As mentioned up thread once RRSP's are withdrawn you lose that contribution room as well as pay tax on the withdrawal as well. Like TRM and MB I would advise against this. If I read correctly in 5 years the mortgage and the GIC's come due. That would put you at 55 right? When do you plan to retire? Will you be able to save enough in that time period? Do you have other savings? emregency fund? non registered? TFSA? I would use those funds before tapping into my RRSP. If you don't have any other savings then in 5 years you will have nothing but a paid off home. If you believe you are able to save for your retirement in the 10+ years after paying off your mortgage than I would assume that you should be able to adjust your savings in the next 5 years to pay off your mortgage or come close. Regardless, of what you decide I hope it works out for you.


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## Berubeland (Sep 6, 2009)

No I don't think you should withdraw from your RRSP and pay income taxes and possible increase your tax bracket to pay off your mortgage. 

For example if you withdraw the $18,000 you pay 30% tax, that leaves you with only $12,600 to put on the mortgage. Just leave it where it is and increase your payments for now to pay it off faster. 

Having said that I am an enormous fan of paying off your mortgage but not to the point where I would suggest paying $5400 in tax to the government. No!


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## rephard (Dec 14, 2011)

Hi Tara, a 5% interest rate is pretty high , you can refinance with a lower rate and paydown the principle faster. A mortgage broker has excess to mutiple programs to fit your goals. I can recommend someone who is excellent in finding a product for you.


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