Should I Use My Savings to Pay Off Mortgage Debt or Put in an RRSP or TFSA?
When it comes to money management, where to invest, and how to save, many people have big decisions to make.
How will you benefit the most in the short term, long term, and in consideration of all of your investment options? Mortgage rates have been considerably low over the past while, but there are obvious signs pointing towards this trend beginning to change.
Experts believe interest rates could rise to approximately five percent. However, while paying down your mortgage is never a bad idea—especially now and in the near future—as you will pay less in interest, there may be better options available. If you have a TFSA or RRSP, these funds may be able to produce more money for you. Speaking to a licensed insolvency trustee in the Ottawa region like D. & A. MacLeod Company for advice and clarification is an excellent place to start.
Registered Retirement Savings Plan
The Registered Retirement Savings Plan (RRSP) allows Canadians to put in money to an account that is meant specifically for savings after they stop working. It is meant to deter people from withdrawing money, many employers will match contributions, and you can even receive a tax refund if you input more before the tax season begins.
Individuals can invest in their RRSP and can earn more than they would from this option than repaying their mortgage. RRSP investments may also be tax refundable, depending on your location and contribution to the fund. When it comes down to it, an RRSP can produce the most significant increase in the shorter term. Those who benefit the most from this option, however, are part of a high income tax bracket; you are even better off if being part of lower tax bracket by the time you want to withdraw the money.
Tax-Free Savings Account
Although paying down your mortgage is desirable, especially as rates increase, your Tax-Free Savings Account (TFSA) may produce more money for you. The TFSA is enticing because individuals can earn more interest and actually withdraw money as needed—or add more—within the limitations of the program. Most notably, withdrawals from your TFSA are not taxable.
By paying off your mortgage first, you can then strategize about investments, such as saving money and accumulating interest in your RRSP and/or TFSA. On the other hand, if you focus on investments first, you can earn more with which to pay down your mortgage in the future. Ultimately, the choice is yours, but what will work most effectively for your personal financial situation to help you earn more money may differ from the next person.
Discuss Your Options With D.&A. MacLeod Company in Ottawa
Deciding where to put your money, how to save the greatest amount, and how best to pay down any potential debt while simultaneously earning interest will often require strategic planning and the help of a reputable financial expert. To help you clarify your options—such as deciding whether to contribute to a TFSA, RRSP, or pay down your mortgage—speak to a licensed insolvency trustee at a location closest to you for various debt solutions.
For 65 years, individuals and families across Ontario have counted on D. & A. MacLeod Company Ltd. for personalized financial assistance and useful guidance. Contact us for a free initial consultation.