Advertising for this RSP season is in full swing, and the perennial question arises as to the best use of excess funds. So-called 'tax experts' make various recommendations either to pay extra against your mortgage, or contribute to your RSP. There really seems little consensus on this, however, the majority, who suggest increasing your RSP, lack independence, as they sell the product. Although I had found some contrarian advice the pat answer becomes "buy the RSP, and pay down the mortgage with the return." This seemed to be appeasment, as unless you are able to fully fund your RSP from income, there are ways to maximize your RSP contribution, if that is your financial goal. However, as I have an employer-sponsored pension plan, my goal has been to reduce my mortgage. I feel that not only is the reduction of the debt important, it is also a solid return on investment, as I never have to earn the cash to pay the saved interest. I have found a comment that finalizes this topic. Larry MacDonald has discovered that the returns claimed for RSPs are often not realized by investors. Thus the guaranteed 9% to 10% return I see by prepaying my mortgage can be compared to about 4% realized by many investors. So, unless RSP is purchased solely for the tax deduction (a very poor financial practice), reducing mortgage principal makes great financial sense.
It's nice to be validated!
Current projections will see us holding a mortgage burning party before its' 15th anniversary.
Subscribe to:
Post Comments (Atom)
0 comments:
Post a Comment