Ideally, you want your mortgage paid off by the time you leave the workforce. Here’s why.
1. Mortgage payments are largeâ€¨
As housing prices go up, so do monthly mortgage payments. Just imagine how much money you’d have if you didn’t have to pay a mortgage. Now imagine paying that monthly amount and not making any income. Scary, right? You don’t want to have to worry about finding a few thousand bucks a month to pay for your house when you’re not bringing in a paycheque.
2. RRSP withdrawals aren’t the answerâ€¨
You’re probably thinking you can withdraw money from your RRSP to make those payments. Well, besides the fact that the point of saving all that money during your career was so you could enjoy retirement, in order to pay the mortgage you’ll actually need to take out more money than you might think.
When RRSP savings are withdrawn, you have to pay tax. It’s the after-tax dollars that will be used to pay down your debt. Theoretically, you could have to remove $3,000 to make a $2,000 payment.
3. You know what you’re getting into
â€¨There’s always a debate around paying off a mortgage versus investing in an RRSP. A lot of experts recommend concentrating on the mortgage first because it’s easy to see what’s happening. You have a set rate and you can see the balance dropping. With investing, the rate of return is unpredictable. Aggressively pay down the mortgage first and then use all that extra cash for retirement savings.
4. You’re building equity
â€¨Not only does a mortgage-free retirement give you a lot of extra money to spend in your golden years, but if you need cash to fund something -- maybe a major medical issue, or you want to buy a small condo -- you can sell the house. If the mortgage is paid off you’ll get all the proceeds from the sale.
Retiring mortgage free doesn’t always make sense -- having a large pension, if you're so lucky, could make those payments manageable -- but generally, it’s better not to have such a huge debt when you stop working.
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