One of the all-time most popular questions asked of personal finance experts is whether to use extra cash to pay down a mortgage or invest. There’s no definitive answer to this question, but over the years I have mostly leaned toward investing the money.
When you set up a mortgage, you know exactly how long it will take you to pay off what you owe through your regular monthly, biweekly or weekly payments. Investing is something you can easily put off or ignore – that’s why I like the certainty of taking extra cash and adding it your investments.
Now, for the latest question to come in from a reader about mortgages and investing. This person actually has a three-way question: “I have an extra $15,000 – do I put it in my tax-free savings account, my chequing account or my mortgage?
I’d like your perspective on this one via the quickie questionnaire below. In these financially stressful times, what would you do?
Ideally, we’d have more information on which to base our answers. But since this reader provided no personal details, let’s make a few assumptions:
- the mortgage rate is in the 4 to 6 per cent, which is normal for recent years
- the average long-term rate of return on diversified investments in a TFSA would be 5 to 7 per cent after fees
- the chequing account would pay nil interest
- this individual already has a TFSA with some money in it – they are not starting from zero
I will report back on what readers had to say in answer to this question at a later date. Stay tuned.
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Rob’s personal finance reading list
The New York Times reports on the money being spent by parents and students to decorate college dorm rooms, including the hiring of interior decorators. We’re talking as much as US$10,000. I could not make this stuff up.
In case you subscribe to the idea that you should deny yourself small-scale pleasures for the greater good of saving a few bucks, here’s a list of top coffee makers. Pricey, but long-term savings over buying your coffee at a café every day. I use this when making coffee at home – makes a great cup.
An expert on rewards programs comments on changes at PC Optimum designed to protect members from fraud. A recent newsletter looked at how some PC Optimum members have had their cards frozen lately so that they could not redeem points.
No-fee credit cards that earn cashback at rates of 0.5 to 3 per cent. These are entry level cards, which means qualifying should not be hard.
Podcast fans
Subscribe to Stress Test on Apple podcasts or Spotify.
Ask Rob
Q: How could I find a financial planner to help me with my retirement plan and estate planning?
A: I listed several different resources for finding a financial planner at the end of this recent column.
Do you have a question for me? Send it my way. Sorry I can’t answer every one personally. Questions and answers are edited for length and clarity.
Tools and guides
A credit counselling agency on which debts are and are not eliminated through bankruptcy
In the social sphere
Social Media: The perils of market-timing, which means guessing when the stock market will fall.
Listen: A look at why tipping is everywhere these days.
Money-Free Zone: September by Earth, Wind and & Fire. Included here because it’s September and because it’s one of the great feel-good songs. Treat yourself.
More PF from The Globe
- Is there a right way to give your children allowances?
- Rate cuts have invigorated my RRIF portfolio
- A Gen Z guide to what central bank rate cuts mean for investing, homebuying and emergency savings
- Here’s a powerful and underused way to boost contributions to a first home savings account
