Personal Finance

Should I put money into TFSA or pay down mortgage?

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  • Nov 11th, 2015 3:43 pm
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[OP]
Sr. Member
Sep 18, 2008
624 posts
186 upvotes

Should I put money into TFSA or pay down mortgage?

Just got some additional cash from my dad when he sold his house about $20000.

Should I put it into a TFSA or pay down my mortgage of 160000? (Mortgage rate is 2.29%)

What would you RFD member do if you were in my situation?

Update: I am 33 can't retire anytime soon. Also thanks everyone for the feedback I have been taking a look at the tfsa rates boy are they low. Leaning towards slapping the whole amount into the mortgage for the guaranteed 2.29%.
40 replies
Deal Fanatic
Mar 24, 2008
6208 posts
2605 upvotes
Toronto
I would put it towards my mortgage and cut the amortization vs investing in my TFSA.
TFSA: XAW | RRSP: AOR | Non-reg: XUU + GICs
Deal Addict
User avatar
Jan 20, 2009
1827 posts
253 upvotes
Toronto
principal for mortgage. the interest is already eating away at your pockets. any gains in the TFSA has to be calculated with the interest first. well this is just my opinion.
Banned
Jul 23, 2011
498 posts
73 upvotes
Lindsay
mtg mtg mtg....I always advised my clients over the years that will be better off in retirement with no debt vs a good pension or significant RSPs/tfsa (assuming they can't afford both)
Sr. Member
Oct 11, 2010
980 posts
325 upvotes
Charlottetown
my thought is if you think you can do better than 2.29% investing the money then do that. 160k @ 2.29% is cheap debt

That being said, the market has seen better days. What if you did half to the mortgage and half to TSFA?
Deal Fanatic
Nov 24, 2013
6241 posts
2987 upvotes
Kingston, ON
The mortgage paydown is a risk-free 2.29% return, but on the other hand, there's no shortage of stable/growing Canadian stocks with 4%+ dividend yields. The underlying share price could go down, but that only matters if you sell. If you look at blue-chips like TD or RY, they haven't ever decreased or suspended a dividend that I can find, even at the depths of recession.
Sr. Member
Jan 5, 2015
615 posts
165 upvotes
Edmonton, AB
I think it depends on what your plan to use your TFSA for.
Will it be for emergency funds? Vacation funds? For trading? for retirement?

IMO if it's for anything other than for retirement, put the money towards your mortgage.
Deal Addict
Mar 8, 2013
2792 posts
1461 upvotes
There is a financial component and also an emotional component. Personally, I would take a nice round number, say $10,000, and put it in an index fund in a TFSA, separate from my other investment accounts. Then I would put the balance into paying down my mortgage. Years from now, when you have paid off your mortgage, you may not remember who helped you. However, every time you get your fund statement, you will be reminded. It won't matter if the fund is up or down, returning more than 2.29% or less, but you will have something that reminds you of your dad.
Deal Addict
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Dec 14, 2007
3105 posts
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2.29% is super low. Put it in a TFSA. Stocks are in a dip right now, it's a good opportunity to get into the market. But, I guess it depends on if you know what you're doing or are paying someone who does? $20,000 will be close to $26000 in 5 years invested @ 5%. When you renew at a higher rate, you can withdraw and put it towards your mortgage if you can't get such a low rate.
Deal Fanatic
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Apr 20, 2011
5310 posts
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Vancouver
tdotojnf wrote: Just got some additional cash from my dad when he sold his house about $20000.

Should I put it into a TFSA or pay down my mortgage of 160000? (Mortgage rate is 2.29%)

What would you RFD member do if you were in my situation?
Put in the mortgage since thats a risk free return instantly
Deal Addict
Jul 9, 2004
1572 posts
171 upvotes
Delta
I'd split it. Diversification.
[OP]
Sr. Member
Sep 18, 2008
624 posts
186 upvotes
Thanks for all the feedback. Ok I will probably go put it down towards the mortgage.
Deal Addict
Apr 4, 2013
1274 posts
409 upvotes
Difficult question to answer. We don't know how old you are, where your house is located, what the value of your house is, what your investment goals are, when you would like to retire, whether you have any other investments, what your employment situation is....

You've already invested in a house. Putting more obey into paying down the mortgage keeps you into one asset only - no diversification at all. And while it may be a great goal to own a house outright at some time, owing it and not having any income is rarely a good idea. I would put the money into a TFSA with a goal towards growth.

I had coffee with a friend of mine just today and the topic of his owning a house outright came up. He is frustrated that it still costs him money. He is semi-retired and his wife wants to own a home and doesn't even want to entertain the idea of re-mortgaging it and investing. So, his house is an expense on his cash flow. Yes, the house is an asset on paper, but it can't spend it. Instead, he continues to pay out every month on property taxes, utilities, maintenance and upkeep. As he said - the friggin' place is costing me money and it isn't making me any money.
Deal Fanatic
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Apr 20, 2011
5310 posts
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Vancouver
Putting the extra money into the mortgage is a guaranteed tax free return instead of a 'maybe' tax free return in a tfsa gambling on the stock market
Deal Fanatic
Feb 15, 2006
9041 posts
3629 upvotes
Toronto
2.29% is a very good low rate. Most long term investments can easily earn more than that. But it depends on what your priorities are.
cbr663 wrote: his house is an expense on his cash flow. Yes, the house is an asset on paper, but it can't spend it. Instead, he continues to pay out every month on property taxes, utilities, maintenance and upkeep. As he said - the friggin' place is costing me money and it isn't making me any money.
Even if the house is fully paid for (mortgage free), you still have to pay taxes, utilities, maintenance and upkeeping. All expenses you have to continue to pay. Even if your car is fully paid for, if you want to drive it you still have to pay gas, license, insurance, maintenance, etc.

Even if you are free of all debts, if you want to live, it's not free.
Deal Addict
Apr 4, 2013
1274 posts
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Arrgh wrote: 2.29% is a very good low rate. Most long term investments can easily earn more than that. But it depends on what your priorities are.
I agree. Paying 2.29% isn't a huge cost on the mortgage. It would be easy to invest in a TFSA and earn more. And, should mortgage rates start to climb higher than what his investments earn, he can use the money then to pay down his mortgage.

Even if the house is fully paid for (mortgage free), you still have to pay taxes, utilities, maintenance and upkeeping. All expenses you have to continue to pay. Even if your car is fully paid for, if you want to drive it you still have to pay gas, license, insurance, maintenance, etc.

Even if you are free of all debts, if you want to live, it's not free.
That's what my friend is discovering. While he didn't come out and say it, I think that he finds himself in the position of being house rich and income poor. He told me that he bought into the belief that as long as you owned your home you were okay, but the house is costing more and more. He wants to sell and move - it's the family home and a 4+2 bedroom home is no longer needed for just two people. But, after living in the same place for 30 years, his wife cannot even think to leave her home. The challenge is that they haven't done much to the home in the past 30 years, so the house now needs a major overhaul - new floors, kitchen, bathrooms, major cracks in the brick...all the expensive stuff. His words - this asset has become a major liability.
Deal Addict
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Aug 4, 2003
2871 posts
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popbottle wrote: Putting the money into a TFSA is not a guaranteed return
That is the one thing people continue to ignore. I am sure, people were making a killing in the market up until late 2008. Paying down the mortgage seems like an easy, guaranteed return. Market is nothing more than a glorified casino. Wake up and smell the roses.
Deal Fanatic
Mar 24, 2008
6208 posts
2605 upvotes
Toronto
Arrgh wrote: 2.29% is a very good low rate. Most long term investments can easily earn more than that. But it depends on what your priorities are.


Even if the house is fully paid for (mortgage free), you still have to pay taxes, utilities, maintenance and upkeeping. All expenses you have to continue to pay. Even if your car is fully paid for, if you want to drive it you still have to pay gas, license, insurance, maintenance, etc.

Even if you are free of all debts, if you want to live, it's not free.
Really? Why even own anything if thats the case? Rent a house and lease your car...

Basic math tells us that a paid for house will cost less to carry (interest payments) and the bank can't kick you out for missed mortgage payments. :facepalm:

2.29% guaranteed return after taxes is more like ~3.09% if you are in the 35% marginal tax bracket. If you can show me where I can get a guaranteed 3.09%+ without taking any risks, I'll change my mind!
TFSA: XAW | RRSP: AOR | Non-reg: XUU + GICs
Deal Addict
Jul 9, 2004
1572 posts
171 upvotes
Delta
McMaggot wrote: That is the one thing people continue to ignore. I am sure, people were making a killing in the market up until late 2008. Paying down the mortgage seems like an easy, guaranteed return. Market is nothing more than a glorified casino. Wake up and smell the roses.
And people have been making a killing since 2008... Yes the market is volatile, but that's irrelevant with time and the right temperment. Not going to get into this whole topic too much but no we are not ignoring it. Some people have asked the OP what are his plans with the funds or to split it between the mortgage and TFSA. In the end though you do what you are comfortable with.

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