Personal Finance

Double up mortgage payments OR maximize RRSP?

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  • May 25th, 2014 9:22 am
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Newbie
Mar 21, 2009
11 posts
2 upvotes
manitoba

Double up mortgage payments OR maximize RRSP?

My wife and I are in a situation where we have enough extra funds to either double up our mortgage payment or maximize our RRSP contribution (approx $30,000). I make approx $130,000 per year and the wife makes approx $70,000 per year. Or mortgage is approx $444,000 (@2.5% floating). Other than our mortgage we are debt free. I was thinking of maximizing my RRSP contribution then using the tax return to pay down the mortgage. Any advice would be much appreciated. TIA, Curt
2 replies
Newbie
Jan 29, 2009
64 posts
12 upvotes
pharmer1 wrote: My wife and I are in a situation where we have enough extra funds to either double up our mortgage payment or maximize our RRSP contribution (approx $30,000). I make approx $130,000 per year and the wife makes approx $70,000 per year. Or mortgage is approx $444,000 (@2.5% floating). Other than our mortgage we are debt free. I was thinking of maximizing my RRSP contribution then using the tax return to pay down the mortgage. Any advice would be much appreciated. TIA, Curt
Personal opinion here:

For your income level, and assuming that you have the RRSP room, then I would go with maximizing your RRSP contribution. Your marginal tax rate is ~40% in Manitoba extending down to $87k, so you will take a 40% penalty to use that money on paying down your mortgage now. The 2.5% is barely beating inflation, so it is not worth paying down the mortgage at this point. Even the mighty Apple decided to borrow money now, though they get to write off the interest paid on their bonds.

Once you get your RRSP large enough, there is also the bonus of doing a self-directed mortgage (essentially lending yourself a mortgage from funds in your RRSP and becoming your own lender), but that is for another day.
Deal Fanatic
Mar 24, 2008
6278 posts
2753 upvotes
Toronto
I would personally do a bit of both - split it down the middle. Definitely increase your mortgage payment but don't ignore your RRSP because of your income.

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