Lets say I have $1 million owing in my mortgage, current variable rate of 6.1%, remaining amortization 38 years. I also have 1$ million in GIC (basically bonds where the coupon can get added to principal and earns interest) paying variable rate of 4.6%. For the sake of the argument, lets assume the inflation rate on average will be 3-4% in the next 10 years.
I'm having a difficult time deciding if I should cash out the bonds and pay off my mortgage or keep my money where it is. Doing the calculation without considering inflation, it seems like because mortages are simple interest and GICs are compound, assuming interest rates stay the same, despite the rate difference the cashflows break even in 7 years and then its better to keep them in GIC. Repeating the calculation for lower interest rates seems to push back this breakeven period so I'm actually benefitting from higher rates. However Im struggling on incorporating inflation into these calculations and figuring out the results based on real rates. Obviously one can just subtract inflation from GIC return% and that's your real rate for the bonds but how does one do the same to a mortgage and incorporated real rates into mortgage payments? Lets say my income is a salary and does not change.
I'm looking to maximize my wealth in a 10 year window, but I'd also like to consider if results would be different over a 20 year window. I don't care for owning my home outright as soon as possible, just maximizing wealth. And how would the results change if the interest rates go down?
I'd appreciate someone walking me through the math here.