​Pay off your mortgage before increasing RRSP contributions

Pay off your mortgage before increasing RRSP contributions, advises Kira Vermond of The Globe and Mail.  Many Canadians have made it a lifestyle of increasing their contributions to the registered retirement savings plan (RRSP)  before paying off their mortgages early and in full.  The columnist, after interviewing senior accountants in Ottawa and Toronto, advises otherwise, saying that this strategy will incur more savings and peace of mind for the home owner in the long run.

First, paying off mortgages early will guarantee you a pre-tax return rate of 7. 69 per cent, given that mortgage rates will increase to five per cent in the coming years.  On the other  hand, the returns given by RRSP can be reduced by fees charged through mutual funds and other investments.

Second, capital gains paid on permanent residences are given permanent tax shelters, while funds given to RRSPs are actually delayed tax payments and not ‘free money.’
Third, withdrawals from RRSP are subject to penalties and costly fees.  Meanwhile, home owners can borrow from their equity at friendly rates.

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