Investing vs. Mortgage Debt Reduction
There is a debate that rages on in the world of Canadian finance regarding what the best path is for the public to achieve their highest individual net worth possible. With assets the way they are, this seems to come down to whether to pay off mortgages, or to invest in their RRSP funds and other mortgage investment corporation outlets. The traditional mode of thinking that many people follow states the following: it’s better to get out of debt and pay off what is already owed, including the mortgage, before investing in other endeavors.
However, new ways to look at finances have decreed that there are actually pros and cons to each mode of Mortgage Investment Corporation. When it comes to investing vs. mortgage debt reduction, there are a number of options to consider. Many of these factors come down to the interest rates of mortgage term vs. those of loans that you would take out to invest. If you have already drained your RRSP funds, and need to take out more money in order to invest it back either into the stock market or into the RRSP, there are different levels of interest rates that you could expect to pay.
The good thing about keeping your mortgage terms rather than paying them off is that mortgage interest rates for long term plans tend to stay pretty low. Therefore it makes sense in a way to take out other, high-interest loans, with the sole intent of investing them into other areas, and then paying them back quickly once you have started seeing returns off through your mortgage investment corporation outlet. This will depend on what you are investing in, and should not be a plan that is undertaken by those with no experience in the stock market or with other best investment procedures.
A benefit of paying off your mortgage as quickly as possible would be that you will help raise your credit rating, which can also come in handy for future best investment(s). If you are planning on purchasing a new home, for instance, it would behove you to pay off your debts and mortgage in full, in order to go into a new plan of financing without any excess financial baggage hanging over your paperwork. This can be beneficial in the long run for future homeowners or those who are still at a young age.
There is not only age to consider when weighing the pros and cons of investing vs. mortgage/debt reduction. Having a family to support will also weigh into this decision, if you are most likely going to have to start paying tuition fees for your children, or help support them with their own financial issues as they struggle down the path to financial independence. You may need to help them buy their own first home, or other issues along these lines. These are but a few of the different items to think about.
Seeking the advice of a professional financial adviser who is skilled in the world of mortgage repayments is essential before making any major decisions regarding this matter. Going to an independent financier is recommended over going to the banks, because the banks have more at stake in terms of keeping you on their own terms, in debt to them, and will of course tell you to lengthen your mortgage terms or refinance the home through them. Before visiting a professional, you should make a list of questions that you may have regarding financial terms and services, as well as list of your own assets.
It seems then that there is no clear answer to this that is suitable for every person, as is the case with most financial issues in Canada. When it comes to investing vs. mortgage and debt reduction, the best plan may actually be a combination of both. Investing some money into the RRSP account, as well as purchasing stocks and bonds, could be a good way of ensuring future capital and increasing net worth. On the other hand, reducing personal debt and paying off outstanding mortgage amounts is also clearly a worthwhile pursuit. For those who are paying attention to their finances and have budgeted extra money, it is clear that both outlets should be used.