As the end of the RRSP contribution window for 2014 approaches, is it better to pay down your mortgage or contribute to your RRSP?
According to a report issued yesterday by Jamie Golombek, Managing Director, CIBC Wealth Advisory Services, record-low mortgage rates mean retirement savings contributions may be the wiser choice this year.
“With mortgage interest rates at a 60-year low, neglecting your long-term savings in favour of debt repayment may result in sacrificing the quality of your retirement,” he wrote. “When the rate of return on investments exceeds the rate of interest on debt, investing (either in an RRSP or TFSA) is a better choice.”
Golombek’s analysis showed that for homeowners dealing with a relatively long time horizon before retirement, the benefit to investing in an RRSP or TFSA rather than paying down mortgage debt may be significant.
“While you certainly may sleep better at night [by paying down your mortgage], you may not be doing yourself any favours by rushing to get out of debt while mortgage interest rates are at rock-bottom levels,” he said.
However, he said that logic does not apply to those with a high level of mortgage debt who might not be able to sustain an increase in mortgage rates. For those homeowners, “It might be best to minimize your risk and simply focus on debt repayment,” Golombek said.