In this video we talk about should you pay off your mortgage early, or invest?
Should you pay off your mortgage — or save for retirement — or should you cash
in some of your retirement savings to pay off your mortgage? That's coming right up.
– Welcome to Homebuyer's School
brought to you by Brookfield Residential.
– Hi everyone I'm Karl, and welcome to another home buyer school video,
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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?
– 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. A lot of it just kind of depends on what your
financial goals and your work, 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 and
paying down your mortgage—and the real estate market drops or the value of
your home has not 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, have some TFSAs, have some stocks and bonds, have some
mutual funds, have other investment vehicles that kind of diversify.
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—your financial advisor will 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 your type of goals.
– 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. 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 stick just in a normal payment ,you'll
definitely be paid off in 25 years, but your retirement—there's no such thing
til 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 done that and you feel like you still have room
available, like I said before, definitely start paying off your mortgage then.
– 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. Please do not do that. Have a sit down with your financial
planner and they can talk about—there's massive tax implications to cashing out
your RRSP. So there's something called withholding tax. Depending on
what the range your RRSP is in, it could be as much as 30% or higher. 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. It's almost like you've been
taxed on a 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 a lower tax bracket, when you are retired. It's a
great investment vehicle and it works hand-in-hand with you other investments.
So definitely talk to your financial planner.
Please don't take anything out of your RRSPs before before speaking with them.
– 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 are very minimal. Take the money and invest it
based on what your risk tolerance is. So sit down with the financial planner,
they'll go over your risk tolerance with you—and there's investments set for
every single risk tolerance out there. You might be a higher risk investor or
lower risk investors, and there's going to be something that meets your needs.
But definitely do more than the ordinary of just putting in a savings account, and
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 said in terms of paying
your mortgage off early or investing?
– There's a lot of great ways to pay
off your mortgage without really not being able to save for retirement.
Sometimes you can just increase your mortgage payment by an extra $20
bi-weekly or $40 bi-weekly 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 is an investment. It will pay itself off.
The equity there is your equity, but your retirement something is
that's also very important a lot of people do not focus on til it becomes
too late, and then it becomes a bigger burden or a bigger task to kind of do.
So the sooner you get to it the better. That is my opinion and my advice.
– 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.
– That's another edition of
Homebuyer's School. Tune in next time
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