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I've a appx 450K mortgage left at 2.49% (5 year term with a 25 year mortgage). I've a few options to pay my mortgage faster

  • Increase principal payment amount once/year
  • Change payment frequency from monthly to weekly / bi-weekly
  • Lump sum payment once/year

My mortgage is going to renew in 1.5 years and I assume my refinancing rate is not going to be more than 3 odd %. (Currently you can get a 5 year term term / 25 year amortization for 2.69%).

Having said that if there is an extra 200$ every month, Which option would be better for me?

  1. Increase the payment amount by $200 / month
  2. Change payment frequency to weekly/bi-weekly
  3. Invest the $200 each month and then pay the lump sum amount at certain point in time.

I'm leaning towards #3 because my investments have been growing at a higher % than the loan rate.
I'am thinking of investing the $200/month in a Tax free investment account (TFSA) and then pay a lump sum if refinancing mortgage ever goes higher than 3.5%. If it does not happen during the refinancing date (every 5 years), then keep investing in the TFSA.

Am I right in assuming that this is correct for me?

FYI:
I do not have any other form of debt.
The $200 is the extra amount I have after moving some $$$ into my TFSA (Tax Free Investment) and RRSP (Retirement plan) accounts.

  • 3
    VOTING TO REOPEN. This is not a duplicate. This question pertains to Canada while the linked to question is for the United States. Retirement account types, tax rules, and mortgage-related tax deductions vary sufficiently that we shouldn't close a Canada-specific question as a duplicate of a U.S.-specific question (even if the end result of the answer ends up the same). – Chris W. Rea Jul 11 at 21:34
  • Pete. It was all Pete. Reopened now. The answers may overlap, but the references to available retirement accounts and tax treatment makes them different. Did I mention it was Pete that closed as dup? – JoeTaxpayer Jul 12 at 0:34
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    Do you have kids? If so, an RESP offers the best return. – brian Jul 12 at 16:12
  • Do dog(s) count as kids? :D... – Viv Jul 12 at 16:19
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Optimistically, you are playing an arbitrage game for 6.5% (10%-3.5%). For me it is not worth it, I'd rather own a house free and clear. You may have a different opinion.

One of the ways to evaluate a business proposition is to discount the money invested in 20%. So, you would only buy into a business for 100K if it had 20K in profits. That 20% factors in risk.

Applying that to your situation, you are essentially buying into business through investing. While there might be less risk because of diversification, you are still well below the standard 20%. So the math would suggest to pay down the mortgage.

The financial press would say do #3, however, those that pay their salary benefit from you doing #3.

  • Thank you... I'll do that – Viv Jul 11 at 12:41
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    That was strange. You wrote a decent answer, then marked the question as duplicate? More strange, perhaps, is that I never answered that linked one. Time for me to start writing. – JoeTaxpayer Jul 11 at 14:49
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    That is me, strange. – Pete B. Jul 11 at 15:46
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    #1 This is not a business proposition. #2 Why 20%? – RonJohn Jul 12 at 16:02

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