Which will have a better long term financial benefit? Paying off your mortgage or investing your money? In this episode, we discuss which one is best for you and if you should save for retirement (or save in general) first or pay off your mortgage? We also explore if it's a good idea to withdraw your RRSP to pay off your mortgage.
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Hi everyone, I'm Karl, and welcome to another Homebuyer's School video, a channel where you get the latest strategies, tactics, and tips from home buying experts. And remember, if this is your first time on this [00:00:30] channel and you want to get the latest strategies from the experts, hit the subscription button below. Hit the little notification bell so you don't miss anything.
So today I'm joined by Mujtaba Syed, Mortgage Specialist with the Bank of Montreal.. And the question we're going to answer today is,
Should I pay off my mortgage or invest it?
So Mo, Which should I do if I can actually do both at the same time?
Yeah, that's a great question, Karl.
So there's a lot of different views on this.
The best one would be to sit down with your financial planner. Lot of it kind of depends on what your financial [00:01:00] goals and your retirement goals are.
So when I sit down, what makes sense to me is that if you're going to pay down your mortgage a lot sooner, I'll look at your house as an investment, because that's technically what it is. There's a value attached to it.
So if you put all your funds in paying down your mortgage and the real estate market drops, or the value of your home has now dropped, your investment has actually dropped. So you've lost some value over there.
So what I believe in, like any other investment, is to diversify your investment as much as possible.
Have some RRSPs, [00:01:30] have some TFSAs, have some stocks and bonds, have some mutual funds, have other investment vehicles that kind of diversify.
And then after you've done all of that and you still have some extra room available, then definitely put that towards your mortgage.
Pay it down sooner. But set up everything first before you just solely focus on the mortgage.
Once again, your financial planner or your financial advisor would be really good people to sit down with and have the conversation with to kind of discuss what your goals are. It has a lot to do with [00:02:00] your retirement, of course.
So is it better for me to actually pay off my mortgage or save for retirement?
What I would recommend is definitely to save for retirement.
A lot of Canadians, unfortunately, haven't started saving for retirement or they haven't thought about saving for retirement. So there's a big gap there.
So I think retirement is something that should be on top of your mind. A lot of people, you guys work really, really hard for your money.
You should be invested so you can enjoy your retirement years. [00:02:30] You don't want to be able to be forced to go back into the workforce if you don't have retirement.
Your home will definitely pay itself off. If you keep on staying on top of your payments, most amortization, or life of the loans, are 25 years. So if you stay just on a normal payment, you'll definitely be paid off in 25 years.
But your retirement, there's no such thing until you make an effort to save for your retirement. You need to be cognizant and you need to be proactive for your retirement.
So definitely, I would say retirement first.
Once you've that, and you feel like [00:03:00] you still have room available, like I said before, definitely definitely start paying off your mortgage then.
Karl Yeh: So let's reverse that.
Is it a good idea for me to cash out my, let's say retirement savings or RRSP to pay off my mortgage?
Definitely not. Yeah, please do not do that.
Have a sit down with your financial planner and they can talk about it.
There's massive tax implications to cashing out your RRSPs.
So there's something called a withholding tax, depending on what range your RRSP's in.
It could be as much [00:03:30] as 30% or higher, where right off the bat, your RRSP would lose that value.
And on top of that, once you take it out, that's considered to be income that's going to be added for your year.
So now you have to pay extra income tax. So it's almost like you've been taxed on it double. So please definitely don't do that.
Your RRSPs are there for a specific reason. They're there for retirement.
They're technically there to be taken out when you're in a lower tax bracket when you are retired. It is a great investment vehicle and it works hand in hand with your other investments.[00:04:00]
So definitely talk to you financial planner. Please don't take anything out of your RRSPs before speaking with them.
Karl Yeh: And the last question I have is
Should I save my money or pay off my mortgage?
I believe in investing your money. So it's okay to save it, but obviously, just don't save it into a savings account. The interest payable on a savings account sometimes is very minimal.
Take that money and invest it based on what your risk tolerance is. So sit down with a financial planner, they'll go over your risk tolerance with you, [00:04:30] and there's investments set for every single risk tolerance out there.
You might be a high risk investor or a low risk investor. And there's going to be something that meets your needs.
But definitely do more than the ordinary of just putting it in a savings account.
Invest it. Invest it, start putting it away for retirement, start putting it away for a rainy day. And then if you have some more funds available, then start paying off your mortgage.
Perfect. Do you have anything else to add in terms of paying your mortgage off earlier or investing?
Yeah, there's a lot of great ways to pay off your mortgage [00:05:00] without really not being able to save for retirement.
Sometimes, you can just increase your mortgage payment by an extra $20 biweekly or $40 biweekly and take the lump sum of your savings or your budget towards your retirement.
There's no reason why you can't do both.
Your mortgage, like I said, it is an asset. It's great as an investment. It will pay itself off. The equity there is your equity.
But your retirement is something that's also very important and a lot of people do not focus on till it becomes too late and then it becomes a bigger burden [00:05:30] or a bigger task to kind of do. So the sooner you get to it, the better.
That is my opinion and my advice.
Question of the day
Great. So the question of the day I have for you is
Did you pay off your mortgage early or make an investment and why?
Let us know in the comment section below. Thank you very much for joining us, and remember, if you enjoyed this video and found it helpful, make sure to share and to like and to subscribe. Thank you and we'll catch you next time.
Let us know if you have additional mortgage or financing related questions that we can answer by submitting them in the comments section below.
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About Mujtaba Syed:
Mujtaba is an experienced mobile mortgage specialist with a demonstrated history of working in the banking industry. Skilled in Negotiation, Commercial Lending, Banking, Sales, and Credit Analysis. Strong product management professional.