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My question is: Canadian-specific
QUESTION: In 2003 we bought our first home, and had our first child. Should we pay extra on our mortgage or extra RRSP?
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david ingram replies:
Without a doubt, pay down the mortgage.
It is always better.
Your RRSP room will save itself.
Do not make the mistake of buying the RRSP and putting the refund on the mortgage. That is just smoke and mirrors and the ad should be taken off the air.
You are investing or putting out half as much money again to do that. It is not a comparison, it is a big increase in money out of your pocket.
Let me prove it. If you wanted to put $10,000 into an RRSP, at 40% tax you would get back $4,000 and it sounds good to pay down the mortgage with the $4,000.
However the $4,000 represents another $6,500 in earnings necessary because in reality you have to earn $6,500 and pay $2,500 tax or so to have $4,000 left over. You only needed $6,000 to buy the RRSP.
If you had earned $6,000 and I loaned you $4,000 you could have bought the RRSP fro $10,000 and got your $4,000 refund and paid me back. You only need to earn $6,000 to buy a $10,000 RRSP.
You need to earn $12,500 to buy a $10,000 RRSP AND pay the refund on your mortgage. It is total false advertising to imply that it is the same thing.
David Ingram's US/Canada Services
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