[Feebz13]

Hi CMF,
Have to thank you for all your help on our previosu post : http://canadianmoneyforum.com/showthread.php7801-please-help-prioritize-our-priorities

A quick update/summary:
Age 29/31
Assets:
Daily Banking Account: 5k
Savings 30k
House 246k (purchase price 2008)
TFSA - 20k in couch potato
5k in savings account


Liabilities:
Mortgage 176k

In the time of our last post we've made pretty good strides (I think). We've paid off all our student debt/LOCs, got married, and replaced my 400,000km car with a a newer used car.

We're currently over-contributing to our mortgage by about 25% per payment (bi weekly).
We've got 15k of TFSA contribution room to use up in the coming year.

Our plan is to max out the TFSA room with the couch potato strategy and anything above and over our 30k emergency fund will go to pay down the mortgage. Current mortgage rate is 3.77 with 1 more year left on term. Long term plan is to move closer to the city (likely 2 years away), and likely start a family around that time.

Should we focus all our attention on paying down the mortgage and leave the TFSA room or aggressively fund the TFSA and then concentrate on mortgage? Or should we take a balanced approach.

Any insight would be appreciated.

 

[Oldroe]

Life starts when the mortgage ends. And life is a balanced thing.

I went balanced with the mortgage #1. Worked out well for use.

 

[Square Root]

Life starts when the mortgage ends? Sounds a little extreme to me. Although I do get your point. I would say as long as it's gone by the time you retire, that's not too bad.

 

[Just a Guy]

Well, if you can earn more than you pay, I'd always go that route... So, if your Tfsa earns more than your mortgage go that route. Also, Tfsa can be used if there is a crisis, whereas banks are reluctant to lend you money in one. Speaking from experience, if you have a financial crisis, it's always good to have liquid assets and lots of credit available to see you through it.

 

[marina628]

I am not sure if all banks do this for everyone but when we prepay the mortgage there is an 'available cash' amount where we can pull it out in 2 days if we need it.I have done this twice once with bmo in 2001 and with TD in 2008.There was no fees they just put the mortgage up the amount i took back.

 

[Plugging Along]

I am all for the balanced approach with a slightly higher weighting to the mortgage.

My reasoning is that the op has a really great income, and based on how far they came since the other post, they have discipline. Way to go on your progress OP.

Paying off the mortgage at 3.77% is pretty good rate of return which is gaurenteed. Also puts them in a better position whe they decide to have a family. I also would put some for the Tsfa as that will help for the family and is a good buffer.

 

[Just a Guy]

I am not sure if all banks do this for everyone but when we prepay the mortgage there is an 'available cash' amount where we can pull it out in 2 days if we need it.I have done this twice once with bmo in 2001 and with TD in 2008.There was no fees they just put the mortgage up the amount i took back.

That why I like TD's helocs. You can lock in portions like a mortgage, but as you pay it down, it is still there. Of course helocs appear on your credit report differently than a mortgage, so it's not for everyone...

 

[HaroldCrump]

Life starts when the mortgage ends.

These days with $500K mortgages, 35 year amortizations, and historic levels of senior debt, perhaps the reverse is true i.e. mortgage ends when life ends.

 

[Oldroe]

With all TD mortgages sign them at 25 year weekly or bi weekly. Then you can change the amortization period any time.

So you make it 20 year and your payment goes up 1/5 and all that goes on your balance. When I worked we had seasonal over time, I would drop the mortgage amortization by half my Sat. Sun money. And the other half yep yep yeppee.

Yes 500k for me is eye popping but with the op income their is no reason for not going mortgage free in reasonable amount of time.

 

[Feebz13]

I am all for the balanced approach with a slightly higher weighting to the mortgage.

My reasoning is that the op has a really great income, and based on how far they came since the other post, they have discipline. Way to go on your progress OP.

Paying off the mortgage at 3.77% is pretty good rate of return which is gaurenteed. Also puts them in a better position whe they decide to have a family. I also would put some for the Tsfa as that will help for the family and is a good buffer.

Thanks for all the responses. And thanks for the kudos. We're trying not to keep up with the Jones' and live within our means.

We're leaning towards the above approach. Approximately 80% to mortgage 20% to TFSA. Always good to have confirmation and support!

Thanks again.

 

[BarrelOfFish]

mortgage...mortgage...mortgage

There is no point in contributing to the TFSA..when you have a mortgage.
Pay the mortgage down.
Pay the mortgage down.
Pay the mortgage down.
You are guaranteed to save yourself $$ by doing that.
There is no guarantee that a TFSA investment can do that for you.

 

[Sampson]

There is no point in contributing to the TFSA..when you have a mortgage.
You are guaranteed to save yourself $$ by doing that.
There is no guarantee that a TFSA investment can do that for you.

Who needs guarantees?

When done properly (accounting for risk exposure), leveraged investing can pay off big. Ask anyone who decided to put money into the market between late 2008 until today. Mortgage rates have been abysmally low, so like usual, the guaranteed return from paying down 2-4% mortgage debt has been poor compared to returns from equity markets (upwards to 100's of %).

A one stop 'pay down debt' suggestion is a little limited in my eyes.