Becoming a homeowner is one of life's greatest milestones. And while it's exciting and thrilling, owning a home is certainly one of the most expensive ventures Canadians make.
One of the most common financial decisions homeowners continue to face is deciding whether or not to use their savings to pay down their mortgage or to invest it in their nest egg through a registered retirement savings plan (RRSP) contribution.
"The mortgage versus RRSP contribution question is one I hear from many homeowners—especially during this time of year with the RRSP contribution deadline quickly approaching," John Finnie, director of investment and insurance services at Meridian, Ontario's largest credit union.
This dilemma is especially more problematic for first-time home buyers who have leveraged the Home Buyers Plan (HBP) to help fund the purchase of their first home. Through the HBP, first-time homebuyers can withdraw up to $20,000 from their RRSPs to help fund the purchase of their home. The funds are withdrawn tax-free as long as they are repaid within 15 years.
According to Finnie, many aspects —- including a homeowner's age, remaining mortgage principal, income, expenses and tax bracket —- all play a vital role in determining how to best allocate the funds.
A common strategy often recommended to homeowners is to maximize their yearly RRSP contribution and leverage their tax refund to help pay down the mortgage.
Finnie recommends that homeowners meet with a trusted financial advisor to determine the best solution for their particular situation.
