Golf, travel and relaxation may all be part of your retirement plans—but mortgage payments probably aren't. With a mortgage to pay down and retirement to save for, many boomers are faced with a decision about where they should direct their funds.
Does it make more sense for baby boomers to prioritize paying-off the mortgage or to max out investments and RSP contributions? The answer to this question depends on many factors and an expert at your bank can help you analyze your specific situation. TD Canada Trust offers the following general guidelines:
If retirement is still a long ways down the road, it can make sense to invest and take advantage of the power of compound interest over time. Further, you can put money into an RRSP, and then pay down your mortgage with any tax refund you may get.
If you are close to retirement, then the benefit of contributing to an RRSP, outside of reducing your immediate income tax liability may be minimal, and paying down debt can be a better option.
If you have extra money to put towards your mortgage, there are strategies that can help you be mortgage free faster, including:
- Increasing the frequency of your payments
- Increasing the amount of your payments
- Making a lump-sum payment
- Choosing a shorter amortization period
“If you want to be mortgage free as soon as possible but are nervous about increasing payments should your financial situation change, explore flexible mortgage payment features,” says Farhaneh Haque, regional manager, mobile mortgage specialists at TD Canada Trust. “If you decide to pay more towards your mortgage throughout the term, you may be able to reduce payments later to suit your lifestyle.”
If you're approaching retirement with a mortgage, speak to your mortgage broker or financial advisor to find the balance of debt repayment and investing for your future.