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Should I pay off my mortgage or contribute to my RRSP?
Contributing to your RRSP is a great way to save for retirement. However, you may gain more in the long run by paying down your mortgage first. Which strategy is right for you?
Duration: About 1 min.
YOUR RRSP DETAILS:
You may be better off to contribute to:
| RRSP savings | |
|---|---|
| Pay down mortgage then invest savings into RRSP: | $36,739.88 |
| Contribute to your RRSP: | $29,898.65 |
| Your savings difference: | $6,841.23 |
TALK TO AN ADVISOR ABOUT THE BEST STRATEGY FOR YOUR RRSPS
An advisor can help you put together a retirement savings plan that is right for you.
Assumed rate of return
Rates of return can vary among different kinds of investments and investment styles. For the purpose of this tool, the suggested range would be 2% – 8%.
Estimated marginal tax rate
Amount to invest
This is the current amount you want to contribute towards your mortgage or RRSP.
Assumptions
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Two scenarios are compared to determine savings. In the first, the lump sum is contributed to the RRSP where it grows at the assumed interest rate until the mortgage is paid off. In the second, the lump sum is applied to the mortgage, shortening the payment period. The extra mortgage payments are then contributed to the RRSP annually where they grow at the assumed interest rate until the year the mortgage would have originally been paid off.
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It’s assumed that there is no penalty for early mortgage repayment.
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The RRSP contributions assume you will receive a tax refund at the marginal tax rate you selected, and this refund amount will be added to the contribution.
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The requirement to close or convert your RRSP by the end of the year in which you turn 71 is ignored for the purposes of these calculations.
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Mortgage payment/interest is applied at the end of the year.
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RRSP contributions are applied at the beginning of the year.
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RRSP returns are applied at the beginning of the following year.
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This demonstration tool is presented for information purposes only. The figures are not guaranteed, as they are based on assumptions that are certain to change. There is no guarantee of future performance.
Why contribute to your RRSP
Option A: Pay down mortgage then invest savings into your RRSP
If you invest $10,000 towards your mortgage, your amortization period reduces from approximately 20 years to 19 years.
Once your mortgage is paid off, if you then invest that same monthly mortgage payment into your RRSP, it will be worth $32,181.25 by the end of year 20.*
Option B: Contribute to your RRSP
If you invest $10,000 into your RRSP instead, your savings over 20 years will be $41,503.16.*
*Total savings include interest and applicable rebates.
Why contribute to your mortgage
Option A: Pay down mortgage then invest savings into your RRSP
If you invest $10,000 towards your mortgage, your amortization period reduces from approximately 20 years to 19 years.
Once your mortgage is paid off, if you invest that same monthly mortgage payment into your RRSP, it will be worth $36,739.88 by the end of year 20.*
Option B: Contribute to your RRSP
If you invest $10,000 into your RRSP instead, your savings over 20 years will be $29,898.65.*
*Total savings include interest and applicable rebates.