Pay down your mortgage or invest the money?

Like many personal finance matters, the decision to pay down your mortgage versus investing is a very individual choice. If you run the numbers, a lot of the time it would seem you’d be better off investing rather than paying down your mortgage.

But according to Sean Cooper, a mortgage broker and the bestselling author of Burn Your Mortgage, that’s only part of the story. “One thing that investing doesn’t provide is peace of mind,” says Cooper. “When you pay down your mortgage, you get a guaranteed rate of return (your mortgage rate). But when you invest, in many cases you don’t know what your rate of return will be.”

Jason Heath, a fee-only certified financial planner and a managing director with Objective Financial Partners Inc. points to a couple of other factors you need to think about when making this kind of decision. One consideration he says is whether you have an employer matching your contribution on your investment account – like a group RRSP or a defined contribution pension plan that your employer also pays into to when you do. “That company match is free money and can make investing a good choice compared to debt repayment,” he says.

Another issue Heath wants you to be aware of is the time frame. “Over the long run, some of the factors that may make investing better than debt repayment may be a high-risk tolerance, low fees and a high tax bracket. People with a low-risk tolerance, high investment fees, or a low tax bracket may be that much better served to focus on debt repayment,” he says.

Heath says this subject doesn’t have to be an all or nothing decision. “A popular strategy is to contribute to your RRSP and make a lump sum payment on your mortgage with your tax refund. This gives you the best of both worlds,” he suggests.

That being said, he cautions: “You probably don’t want to put every single penny towards your mortgage. If you were to run into a financial emergency – you lost your job or became disabled – it’s important to have emergency savings. That’s when your TFSA can come in handy. It can be a great place to park your savings for a rainy day.”

If you’re still unsure, consider seeking out the advice of a Certified Financial Planner and an independent mortgage broker who can help you crunch the numbers and determine which scenario is right for you.

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