That mortgage on your back? Relax. Here’s why
With mortgage interest rates at record lows, neglecting long-term savings in favour of debt repayment may result in sacrificing the quality of your retirement.
A poll out this week by one of Canada's major banks found that if Canadians had extra funds available, 72% of of them favored debt repayment over retirement savings. The primary reason being the financial freedom of being debt free outweighed saving for retirement.
Deciding whether to invest in an RRSP or a TFSA, or putting that money towards paying off debt boils down to a mathematical question:
Can you get a higher rate of return on your investment portfolio than the interest rate on your debt, given a level of risk at which you're comfortable?
If the answer to this is yes, you're likely better off investing. Otherwise, paying down the debt is the best choice. Consumer debt such as credit cards and personal loans come with interest rates that can be quite distasteful, often approaching 20%. It almost always makes sense paying off this kind of debt before making a contribution towards your RRSP.
With mortgage rates being at record lows, it may make more sense for you to invest into your retirement if you can generate a higher rate of return.