Where to Focus

Q & A

Where to Focus?

I'm single, 43-years old, make an excellent salary and have no debt other than a mortgage of @ $172,000 amortized over another 18 years at 5%. My payments are about 750.00 every two weeks and then add strata fees it's about 38% of my annual salary. I max my RRSP's every year (about 5000.00 as I pay into a municipal plan through work - no choice there). Should I be putting any additional savings into my mortgage? Does even a 2 - 3,000 a year make sense or does it make more sense to invest this money elsewhere?

many thx
Name withheld

What a good girl you are. Well focused. No bad debt. Saving as much as you can. You should be very proud of yourself.

Some things to watch for:

a) You're housing costs are running a smidge high… shouldn't be more than about 35% of your total income. However, since you have no debt repayment costs, you sound like you're fine.

b) Do you have an emergency fund… between three and six months' worth of expenses in a very liquid investment (like a savings account or short-term deposit)? If not, that should be a focus.

Now, to your question: Will a $2500 prepayment against your mortgage make a difference? Sure it will. Anything you put against your principal knocks time of your repayment and money of the interest cost. In your case, done annually, that $2500 would knock between 4 and 5 years off your amortization and would save you over $15,000 in interest.

As for whether you should invest that money instead of using it to pay down your mortgage, it depends on the return you're getting on your investment. But you're already maximizing your savings at work and through an RRSP and so I'd say why not have some fun with that $2,500 a year. Life is not just about making ends meet… it's also about having a great time.

Assuming you've already got that covered, since you're 48 and want to be debt-free at retirement, I'd work on paying down the mortgage.