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^^^ for most people, I'd argue that a good term policy is more cost effective and less risky (as it's underwritten in advance, not afterward in the event of a claim). best to talk to an insurance pro, as there are exceptions.

quote:

Originally posted by Superstring I've read the advice given here with great interest. By far the majority of it is sound. One thing that people should remember is that BEFORE increasing your payments on a mortgage, you SHOULD max out your payments to RRSP. ...

edited for long-winded reply. I think that works at certain times and for certain people...but is not a 'truth' for everyone. age, income, investment horizon and risk tolerance, along with market conditions, are all relevant when determining what is best.

you have to make a good argument for what essentially boils down to accepting the risk of uncertain returns vs. certain, risk-free 'return' from paying down interest-bearing debt...debt that carries a definite interest cost that is 'typically' higher than the return of any truly 'safe' investment option.

IMHO, the following is an interesting read. a good chunk is for serious, hands-on investors (i.e. not me, lol), but a fair bit could benefit anyone, particularly the first section.

http://members.shaw.ca/retailinvestor/saving.html

...

http://members.shaw.ca/retailinvestor/RRSPmodel.html#REdownpayment

I'm not sure where the reference to 'loan interest rates' are coming from with regard to the HBP early on...but in relation to the RRSP vs. pay mortgage:

"The answer always given is "Put it into an RRSP and use the contribution tax credit to pay down the mortgage". This is a beautiful answer. It is short, easy to say, easy to remember. It does not require any knowledge about the questioner. It seems to satisfy everyone no matter what the interest rate of their mortgage, no matter what the return on possible RRSP investments.

It is exactly that universality that should raise red warning flags. Financial decisions are rarely universal,and never regardless of rates of return. Now that you understand the RRSP system (above) you should also be clicking on 'what is the error in logic' of this advice. It is based on the presumption that the contribution tax credit is a 'benefit' you should not forego.

You know now that the tax credit is only the illusion of a benefit. The correct answer to the question is "You put the money where it will earn the highest (risk adjusted) after-tax return. One place will always be better than the other.

Assuming your contribution/withdrawal tax rates are the same, you are not taxed on either option. RRSPs protect savings from tax, and paying down debt does not incur tax because the interest was never deductable to start. The return from paying down the mortgage equals its interest rate. Its risk is zero. The expected return from some investment inside an RRSP is probably only slightly higher but MUCH more risky. How you equate the two is your personal decision. When mortgage rates are normal, it is usually better to pay it off. If you are presuming a change in tax rates on the eventual RRSP withdrawals then you must factor that in as well."

I keep my payments the same regardless of the rate, just the amortization changes.

But I kinda disagree with the paying off the loan faster when the rates are low, Its a cheap loan then. Why not save that extra money, re-invest it somewhere else (ie TFSA) and then throw it back at the mortgage at a later date.

quote:

Originally posted by Swamper There are probably old glowsticks and vapo rub bottles hiding behind that drywall

It's good for when he gets a cold no???

quote:

Originally posted by MarkT The return from paying down the mortgage equals its interest rate. Its risk is zero. The expected return from some investment inside an RSP is probably only slightly higher but MUCH more risky.

Most of that seemed to be sound advice except this part. Now, not everybody is an investor, I can understand that, but you should definitely be able to make more than a 5% APR. I mean, hell, you can pay into dividend funds higher than that.

But it's true about the tax credit; if you're putting money into your RSP in the first place then it means you're confident in your ability to get a good return, which means that there's no sense in putting the credit into your mortgage - put it right back into your RSP. Or don't contribute to the RSP in the first place and just pay down the mortgage if you're seriously concerned about the risk associated with securities.

Then again, there is a third angle, which says that using some money to pay down the mortgage (perhaps your RRSP contribution credit) is simply part of maintaining a strategically diverse portfolio of investments. That's not necessarily the right approach for everyone but it is something to think about.

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