I am a big saver – I love to pay down debt but fortunately, I only have one major debt (no student, car or other loans), just my mortgage that I am not going to pay more than the minimum payment.
Here are four good reasons not to pay down your mortgage in Canada:
Reason #1: Cheap interest rates.
With the current interest rate environment, savers are being punished. Why pay down my mortgage at a variable 2.3% when I can invest it in an RRSP or TFSA and make 8-10% on my money?
When you look at inflation, the
Reason #2: Current housing bear market.
I am not sure what is happening in your neck of the woods but the housing prices are not going up like the years 2000-2009. The major increases in your house has been factored in so why pay down debt when if you sell this asset you will not pay tax on the gain.
If your house is worth $500,000 (reasonable in Victoria, BC), and only goes up another $50,000 in the next five years, why spend $25,000 extra paying down the mortgage (if you had this money)? The $25,000 will just evaporate while if you invested in a TFSA you could have a nice diversified investment with interest.
Reason #3: Other investments
With my daughter being born last year, we are starting an RESP and instead of paying down the mortgage we are putting some money aside for her education. Why would you turn down a 20% return on your investment!
Reason #4: Higher financial priorities
I strongly believe in education and opportunities.
I am planning on using some of my savings to take some exams that will further my payscale and career.
[quote]So I can earn more money and pay more taxes![/quote]
Canada is an amazing country but our housing market encourages risk. You could take all the equity out of an existing property and leave 20% to avoid CHMC fees and use the remainder as a down payment for an investment property using leverage and the bank’s cash.
All I am saying in this post, is to look at your options, you do not want to look back and not take advantage of any opportunities that came your way.