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
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.