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An RRSP is a retirement savings plan. You contribute to this account for retirement purposes. When you invest into this account your funds become tax-advantaged. This is a great way to start saving for your long term goals.

I chose this source  as it is from a well known bank in Canada. It provides a great description of what a RRSP is used for and how they work. I wanted to include a basic definition of this type of account to ensure the viewer is familiar with this topic before viewing the rest of the padlet.

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A Registered Retirement Savings Plan (RRSP) is a savings plan, registered with the Canadian federal government that you can contribute to for retirement purposes. When you contribute money to a RRSP, your funds are "tax-advantaged", meaning that they're exempt from being taxed in the year you make the contribution.

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If you are stuck between where to put your income it is always best to look into your future. Both are beneficial for your future but this video specifically looks at the benefits of focusing on  your mortgage payments. When you pay more into your mortgage and have it paid off at an earlier date, that extra money you've been putting towards those payments can be useful to then invest into a RRSP.

I like this video because it outlines the benefits of paying your mortgage over investing all your excess money straight into an investment. I believe both have their benefits and this shows one side of that.

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Why You Should Focus On Paying Down The Mortgage Over Investing

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Taking a look into your financial stand point is a crucial first step to uncovering what will be more beneficial for your specific goals. Having a set of goals will really help you determine which is the better investment for you.

I like this video as it shows how important it is to create a plan and evaluate your budget and financial status. I believe for either investment route this is a step you need to inevitably take.

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Katy Mackenzie, Mortgage Broker, TMG The Mortgage Group Inc.

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Pay down my mortgage or contribute to my RRSP?

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A mortgage is a loan you pay back at a specific rate after purchasing a home. A down payment is needed to be approved for a mortgage. You must pay back this loan over a calculated amount of time arranged called an amortization period by the bank you chose. A down payment in Canada is 5% but some lenders require more. Depending on this value your mortgage is calculated.

I chose to add this URL because it is a reliable source as it is straight from the Government of Canada website. I think it outlines the specifics of everything you need to know about mortgages and how they work. I wanted to provide this information to ensure the viewer understands the difference between a RRSP and a mortgage.

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A mortgage is a type of loan often used to buy a home or other property. A mortgage allows the lender to take possession of the property if you don't repay the loan on time. The property is the security for the loan. Normally, a mortgage is a large loan and is paid off over many years.

When you get a mortgage loan, you are called the mortgagor. The lender is called the mortgagee.

Under a mortgage, you are responsible for making regular payments to the lender. The payments cover the interest on the loan plus part of the principal (the amount of the loan). Payments may also include property taxes, insurance and similar charges.

When you make a mortgage payment, the lender uses it first to cover the interest. Then anything left goes to the principal and in some cases to taxes and insurance. At the beginning, only a small amount goes to the principal, but gradually more of the payment goes to the principal until it is fully paid off. The part of the property that is paid for-both through the down payment and through your mortgage payments-is called your equity in the property.

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A mortgage is a type of loan often used to buy a home or other property. A mortgage allows the lender to take possession of the property if you don't repay the loan on time. The property is the security for the loan. Normally, a mortgage is a large loan and is paid off over many years.

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It is important to understand the advantages and disadvantages of investing into your mortgage versus your RRSP. If you pay off your mortgage then start contributing to your RRSP it will save you interest on mortgage but you will miss out on the benefits of long term compounding growth. If you make your regular payments on your mortgage along with RRSP deposits you will be taking advantage of immediate tax refund but risking a longer mortgage payment period.

I chose this image as it provides a great example of the benefits between RRSPs vs Mortgages.

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I added this photo as it represents the visualization of balancing between investing into an RRSP with your income or your mortgage. I think it also shows that there can be a balance set between the two with proper money management as you want money accumulated for your retirement.

Picture website https://www.moneysense.ca

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This website provides the information of how much tax return a RRSP can generate with contribution and a link to a retirement calculator.

I believe with your personal goals for the amount you wish to generate over time for retirement, will provide an outline of how much you can invest along with paying for your mortgage. It is more than possible to balance the two!

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If you've received a bonus, an inheritance, or another financial windfall you may face an enviable financial decision: contribute to your Registered Retirement Savings Plan (RRSP), or make a prepayment to your mortgage.

The answer depends on your situation. Use these questions to help make the wisest choice. Yet you also have a third option: do both.

How Much of a Tax Refund Will an RRSP Contribution Generate?

Contributing to an RRSP will generate a tax refund based on your income tax rate. This depends on both your income and the province or territory that you live in. Once you estimate your RRSP tax refund and potential growth you'll have a better idea you can compare it against the interest savings generated by a mortgage prepayment.

The higher your tax rate, the bigger your tax refund. And since investment growth within an RRSP is tax-free, you'll delay paying taxes on it until you withdraw it - hopefully in retirement when you'll be in a lower tax bracket.

Some people may feel more concerned about inadequate retirement savings than they are about paying down their mortgage. If you're worried that you're not saving enough for retirement, use a retirement planning calculator to get a quick look at your current retirement savings situation.

If your employer offers to match your RRSP contributions, applying a windfall to your RRSP instead of your mortgage could be an even better choice, because you'll get a tax refund as well as double the RRSP contribution.

How Much Home Equity Do I Have?

Your home equity is your home's current value less your outstanding mortgage balance. When you make mortgage payments, your mortgage balance decreases and your equity increases.

Many people hope to pay off their mortgage prior to retirement to avoid the monthly payment once they're on a fixed income. The lower your balance and the more equity you have, the more flexibility you'll enjoy when approaching retirement.

If you don't have much equity and it's important to you to retire mortgage-free, you may want to use your lump sum for a mortgage prepayment.

How Much Mortgage Interest Will I Save in The Long Run If I Make a Prepayment?

As long as a mortgage prepayment gets applied directly to the principal, you'll save the interest that would have been charged on that amount. Yet the exact savings depends on your current mortgage rate, and the remaining amortization -- how many years left before your mortgage is paid off. Use a mortgage calculator to determine how much interest you'll save from making a lump sum prepayment.

For example, say you have 15 years left on your mortgage, a current balance of $100,000 and a rate of 4.49%. You'll pay $37, 225.94 in interest over the next 15 years. Yet if you make a $10,000 prepayment, you'll pay just $28,659.26 in interest, and save $8,566.68 in interest over the next 15 years.

Tip: Most mortgages allow some form of prepayment penalty-free. Yet if you've already made a prepayment or doubled-up your payments during the current year of your mortgage term, you could face a charge to make an additional lump sum payment.

Still Can't Decide? Do Both

The financial benefit of contributing to an RRSP instead of paying down your mortgage depends on many factors - your income tax rate, the number of years until you retire, the rate of return within your RRSP, your mortgage rate, and the remaining years left on your mortgage.

Instead of choosing one over the other, it's possible to do both. Simply make the RRSP contribution with the lump sum payment, then apply your tax refund as a mortgage prepayment. This way you'll boost your retirement savings as well as reduced your mortgage interest costs.

To learn more about RRSP contributions and mortgage prepayments, visit your local Kawartha Credit Union branch today and speak to one of our knowledgeable financial advisors.

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Pay Down Your Mortgage or Make an RRSP Contribution? There's a Third Option

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If you've received a bonus, an inheritance, or another financial windfall you may face an enviable financial decision: contribute to your Registered Retirement Savings Plan (RRSP), or make a prepayment to your mortgage. The answer depends on your situation. Use these questions to help make the wisest choice.

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It is viable to weigh out each rate of return both investments provide. If your mortgage is at a good rate it would be wise to pay that if your RRSP rate is not as optimal.

This video differentiates between when to invest into your RRSP and what options you have when trying to figure out if you are eligible to do both at the same time.

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Pay down mortgage or contribute to an RRSP?  Your personal finance question explained in 3 minutes!

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It is great to factor in your age when dealing with paying for your mortgage and RRSP. It is optimal to factor in a timeline while doing so. If you are 25 your focus is more likely on paying off your mortgage where as if you are nearing retirement you ideally want to be mortgage free and have a good cushion invested into your RRSP.

This article outlines investment discipline which is very useful surrounding this topic. If you chose to focus on your mortgage as you believe you have enough time before retirement to then start saving, are you going to follow through? If you don't start soon are you going to spend that money elsewhere? I think it this article produced a good eye opener to the reader as it provides a different perspective on this topic.

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February is RRSP season, and there is no shortage of advice available to Canadians on tax-free investing before the deadline of March 2.

One question which often arises at this time of year is whether homeowners should place available cash in an RRSP - or borrow the RRSP contribution - or use the money to pay down their mortgage.

My advice has always been that anyone who has a principal residence should not invest in an RRSP as long as there is a mortgage on the home.

Much of the advice available online and through financial institutions recommends investing as much as possible into the RRSP and using the tax refund to pay down the mortgage. But when advice comes from a source which is promoting RRSP investments, can it truly be unbiased?

In deciding which way to go, some of the factors include:

Interest rate: If the mortgage interest rate is higher than the return earned inside the RRSP, some advisers say it is better to pay down the mortgage.

If the return inside the RRSP is higher, other factors come into play. There may be a preference for paying down the mortgage if the interest rate is at least two percentage points higher than the investment returns in an RRSP.

Your age: The closer you get to retirement, the more important it becomes to have sufficient assets inside an RRSP to fund retirement. But building equity in a home is equally important to many homeowners.

If, for instance, a 25-year-old has no RRSP until her mortgage is paid off, then 15 years later at age 40 she can still make considerable RRSP contributions over the following 25 years before retirement. That's still lots of time to play catch-up.

Investment discipline: Once the mortgage is finally paid off, the amount of the former monthly payments should be regularly used to "catch up" on the RRSP. Will you have the discipline to do that? Or will the car dealer's showroom or travel agent's office beckon you?

Tax on withdrawal: All proceeds of an RRSP, or its conversion into a Registered Retirement Income Fund (RRIF), are taxable on withdrawal. This could put the taxpayer into a higher tax bracket on retirement.

Liquidity worries in future: An RRSP provides a ready source of funds in an emergency. But having a large equity in a home allows a homeowner to obtain an equity line of credit. The equity built up in the house is its own nest egg.

Retirement pension plan: A generous workplace pension plan that will provide a secure retirement offers the opportunity to concentrate on the mortgage more than the RRSP. Those with no pension plan are usually better off paying down the mortgage.

Inheritance: By the time many young people today reach retirement, they will have inherited the wealth of their parents or grandparents. If retirement looks secure for this reason, paying down the mortgage makes more sense while they are in their 20s and 30s.
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Correction: Due to a misplaced decimal point, the historical measurement of a U.S. foot was misstated in my last column. The correct definition is 1,200 metres divided by 3,937.

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Should you pay an RRSP or your mortgage?

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February is RRSP season, and there is no shortage of advice available to Canadians on tax-free investing before the deadline of March 2. One question which often arises at this time of year is whether homeowners should place available cash in an RRSP - or borrow the RRSP contribution - or use the money to pay down their mortgage.

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One thing I found most surprising is the controversy between being able to do both.

I am nearing the age where it is time to start thinking about becoming a home owner and preparing for my future so this topic was very useful. It is important to have the knowledge about having proper investments to provide for a comfortable life after retirement.

After conducting research on RRSP and Mortgages I would highly recommend that you don't wait to invest into your RRSP!

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This video outlines specific deadlines associated when you contribute to an RRSP account such as it being March 1st for last year. As well as it talks about the 18% limit on your yearly income. This video also outlines how RRSP allow for you to carry forward additional contribution for a tax deduction.

I have added this video as it provides numbers associated with investing into a retirement plan and how beneficial it can be on your tax return.

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5 RRSP Tips & Tricks In 5 Minutes (2021)