It’s time to pay off your mortgage, writes Peter Watson.
For many years historic low interest rates encouraged people to borrow. Those days have passed.
Depending on your mortgage details, your interest rate has already increased or likely will soon.
Paying off your mortgage is a good idea, especially before you retire. During retirement your employment income stops and therefore managing and prioritizing cash flow is particularly important.
There are many necessities and luxuries you want to spend on during your golden years. Managing retirement finances is much better if you’re debt-free.
Consider selling your fixed income investments such as bonds or GICs. For this example, we will assume these investments are held outside of a registered account such as an RRSP or RRIF.
Assume you earn $100 per year from your investment. Also assume you pay $100 per year of interest on your mortgage.
Interest earned outside of your registered investment is taxed in the year that it is earned. Depending on your tax rate you might owe taxes of up to about $50.
This gets a little more complicated if your fixed income investment is held in your RRSP or RRIF. Money earned within your registered account is not taxable in the year interest is earned.
However, money withdrawn from your Registered account is taxable. I recommend discussing this with your advisor to consider your financial circumstances including your current tax rate.
Paying off your debt will benefit you every month for the rest of your life.
Now those funds are available: go to treat yourself.
Peter Watson, of Watson Investments MBA, CFP®, R.F.P., CIM®, FCSI offers a weekly financial planning column, Dollars & Sense. He can be contacted through www.watsoninvestments.com
