High house prices have added some urgency to one of the oldest questions in personal finance, which is whether to make a priority of paying off your mortgage or investing. With their mega-mortgages, people who bought homes in particularly expensive cities feel pressure to hammer down the amount they owe. Investing can wait, they figure.
My take: Invest. Your mortgage pays itself off automatically over the years through regular payments, but investing doesn’t happen unless you choose to do it. You’ll find it easiest to build your retirement savings if you start young and put money away consistently. If that crowds out extra payments on your mortgage, that’s OK.
Now for blogger Robb Engen’s view. In a post headlined Why Don’t I Pay Off My Mortgage, he explains that he and his wife have set these financial priorities:
- contribute $1,000 to TFSAs each month
- max out RRSP contribution room
- max out contributions to RESPs for their two children
- travel
Mr. Engen’s mortgage, with a balance owing of $200,000 or so, is next in line. When he has extra cash flow after backfilling RRSP and TFSA contribution room, he’ll look at using the money to pay down his mortgage.
This sounds like a sensible, balanced approach. Give it some thought if you’re tempted to give top priority to paying off your mortgage.
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Rob’s personal finance reading list …
Tips for the renting retiree
A useful checklist of things to remember if you’re downsizing the family home to a rental. Renter’s insurance is mentioned here and it’s a must.
The five best books on investing
This is a U.S. list, but I’m including it because these books are universally applicable.
The terror of losing all your money
How worrying about going broke can make you do irrational things with money.
Financial planning for kids aged 5 to 35
Tips for parents on how to help prepare children for financial success in life. Insightful stuff from an experienced financial planner.
Today’s financial tool
H&R Block has done a survey that suggests 44 per cent of people had not filed their tax returns as of early April. The deadline is April 30. Here’s what happens if you owe money to Canada Revenue Agency and don’t file on time:
- A penalty of 5 per cent of the balance owing.
- An additional penalty of 1 per cent of the balance owing for every full month you’re late (up to a maximum of 12 months).
- Interest charged on both the balance owing and the above penalty.
From there, it only gets worse. If Canadians have been charged a late-filing penalty in any of the previous three tax cycles they may have to pay a repeated late-filing penalty instead. That means:
- The above 5 per cent penalty of the balance owing now becomes 10 per cent.
- Instead of an additional 1 per cent penalty, you’re looking at 2 per cent of your balance owing for each month the return is late, up to a maximum of 20 months instead of the original 12.
Ask Rob
Q: I have been with this (medical) clinic for many, many years. Since I am aged, I have sold my house and car and have bought a condominium in a different part of town. Would it be legal to use my taxi fares as a medical expense?
A: Here’s a response from Bruce Ball, vice-president of taxation for Chartered Professional Accountants of Canada: “There are different rules, depending on whether you have to travel at least 40 or 80 kilometres, but generally speaking there is no credit for shorter distance transportation costs (i.e., less than 40 km).” Click here for more details on how to charge medical expenses related to travel.”
Do you have a question for me? Send it my way. Sorry I can’t answer every one personally. Questions and answers are edited for length and clarity.
What I’ve been writing about:
- Suburban living: The 25-per-cent-off sale in the housing market that comes with a catch
- A better way to improve TFSAs than restoring the annual contribution limit to $10,000
- Three ways to get a second opinion on your investment portfolio (for Globe Unlimited subscribers)
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Rob Carrick