My husband is a consultant and we have our own corporation. For the past two years we have been taking only dividends as income and now have enough money to pay off our house (that is money within the corporation that we have been conservatively investing with interest gained at 3.75 and some investments).  Our mortgage is up for renewal in September and we are trying to decide whether to take the money out of the company (and have to pay personal tax on it) to pay off the house, or renew our mortgage with a variable interest rate (right now we are quoted at  5 year, open mortgage at 4.05%) with the idea that if interest rates do go up THEN we take the money out of the company to pay it off.  What are your thoughts on this?  I know that all of our parents’ goals were to pay off your house as quickly as possible but I am not sure if paying off the house and sitting on a pile of equity is what is recommended these days. Thanks for any advice you may give-we love your show!

This is actually a HUGE question because the answer needs to address a whole bunch of issues.

First, the decision to pay off the mortgage or keep the retained earnings in the company is dependant  both on how old you are and what other goals you have.

If you’re using your retained earnings as a retirement savings (you don’t have RRSP contribution room if you take your income in the form of dividends), then you’re asking should you pay down your mortgage or keep your retirement assets intact.

What do you think?

I think your overall objective should be to retire with sufficient income, while ensuring you’re debt free. If you have lots of time before retirement, perhaps making extra payment against your mortgage will be good enough to get you debt-free in time. What you don’t want to do is have all your money tied up in one asset, even if that asset is your home.