When deciding whether to pay down your mortgage or contribute to your RRSP, it’s essential to consider your financial goals, tax situation, and overall priorities. Here's a breakdown:
Contributing to Your RRSP:
- Tax Benefits: Contributions lower your taxable income, potentially leading to a tax refund, which you could reinvest.
- Growth Potential: Investments within your RRSP grow tax-free, boosting long-term retirement savings.
- Retirement Goals: If you're behind on retirement savings, prioritizing RRSP contributions can help secure your future.
Paying Down Your Mortgage:
- Guaranteed Savings: Reducing your mortgage principal saves on interest over the loan's term, especially if rates are high.
- Financial Security: Paying down your mortgage builds equity and reduces debt, providing peace of mind.
- Flexibility: If you're nearing retirement or seeking financial freedom, eliminating mortgage debt can be freeing.
Considerations:
- Compare your mortgage interest rate to the expected rate of return on RRSP investments. If your mortgage rate is high, paying it down may provide better savings.
- Assess cash flow needs. If money is tight, prioritize the option offering the most immediate benefit.
- Think about your tax bracket. If you're in a higher bracket, RRSP contributions might yield significant savings now.
Ultimately, a balanced approach could work best—contribute to your RRSP while making lump-sum payments on your mortgage, if possible. Reach out today with any questions!