Pay down the mortgage? Or build up your RRSP?
Morningstar, Vikram Barhat
How to decide? Cynthia Kett, a principal with the advice-only firm Stewart & Kett Financial Advisors Inc. in Toronto, suggests considering your mortgage rate on a pre-tax basis.
“If you’re in a 50% marginal tax bracket, your pre-tax mortgage rate would be double your stated rate,” she says. “A 2.5% mortgage rate would be equivalent to 5% on a pre-tax basis. By paying down your mortgage, you’re earning a guaranteed rate of return equal to the pre-tax mortgage rate. Where else could you get the same risk-free rate of return?”