Brief Summary
This video discusses the pros and cons of paying down your mortgage faster versus contributing to your RRSP. The video argues that in most cases, contributing to your RRSP is the better financial decision due to tax-free growth and potential for higher returns. However, there are situations where paying down your mortgage faster might be more beneficial, such as if you are risk-averse, have a large mortgage payment, or are close to retirement.
- RRSP Advantages: Tax-free growth, potential for higher returns, tax planning opportunities.
- Mortgage Advantages: Guaranteed returns, financial freedom, emotional satisfaction.
Mortgage vs. RRSP: Which Should You Prioritize?
This video explores the question of whether to prioritize paying down your mortgage faster or contributing to your RRSP. The video starts by outlining the advantages of making extra mortgage payments, including the fact that 100% of the extra payment goes directly towards the principal, reducing interest costs. This is especially beneficial early in the mortgage term when a larger portion of the payment goes towards interest. The video also highlights the emotional satisfaction of being mortgage-free.
RRSP Advantages: Tax-Free Growth and Higher Returns
The video then shifts to the advantages of contributing to an RRSP, emphasizing the tax-free growth of savings within the account. This allows for compounding returns on a tax-free basis, potentially leading to significant long-term growth. The video also points out that RRSPs can be a valuable tax planning tool, especially for those in higher tax brackets. While RRSPs do not offer guaranteed returns, they have the potential for higher returns than paying down a mortgage.
Mortgage vs. RRSP Calculator and Practical Considerations
The video then discusses the use of mortgage vs. RRSP calculators, which often project that RRSPs will lead to better financial outcomes due to compounding growth and tax savings. The video then explores practical situations where paying down the mortgage faster might be more beneficial, such as for risk-averse individuals, those with large mortgage payments, or those who prioritize being mortgage-free. The video also suggests that contributing to an RRSP might be more advantageous for those who are risk-tolerant, in higher tax brackets, or plan to downsize their home in retirement.
Conclusion: Consult a Financial Planner
The video concludes by emphasizing the importance of consulting a financial planner to determine the best strategy for your individual situation. A financial planner can help you analyze your financial goals, tax implications, and risk tolerance to create a personalized plan that aligns with your long-term financial strategy.
