[rsal59]

My income last year was at 43% marginal tax rate. I have a TSFA of about 20K that I want to use it against my principal at the time of refinancing my mortgage in 2.5 years. When I opened the TSFA last year I was hoping I could get better than my current 2.54% mortgage rate but with the drop of market I couldn't and I'm not sure I will get a better return in the remaining 2.5 years.

Is it a good idea I transfer the money to my RRSP considering my high marginal tax rate and use the 8-9 K refund against the mortgage? (I have 15 years to retire)

Or should I keep it inside my TSFA hoping to get a better return this time and in 2.5 years put it against the mortgage?

Or should I use it as a lump sum payment against my mortgage today?

Thank you!

 

[fireseeker]

Putting your money into the mortgage will guarantee you a 2.54% after-tax return. Given your tax bracket, that's like a 4.5% pretax return. Not incredible, but guaranteed. IOW, a conservative choice.
Putting it into your RRSP and applying the refund to the mortgage is also conservative.
The major caveat is whether that $20K serves as an emergency fund. If your roof suddenly needed repairing, or your car needed replacing, do you have other accessible funds?

 

[Jimmy]

You are in high enough tax bracket that the RRSP option may be worthwhile. You will likely be in a much lower bracket when you retire maybe 20-30% so this seems worthwhile.

 

[My Own Advisor]

If you're in the 43% tax bracket....why not strive to max out TFSA, contribute to RRSP and use, if you wish, the RRSP-generated refund to pay down the mortgage?

 

[Gruff403]

I wouldn't put the TFSA into mortgage or RRSP. Keep the TFSA intact and invest in Canadian Banks with growing dividends which should give you at least 3.5% and grows almost every year. Max the TFSA. If you put into RRSP you'll get that wonderful refund but you'll only be a few grand ahead once you pay tax on the RRSP/RRIF withdrawls. Your money is then tied up. Mortgage rates will grow slowly but not by much. Putting 20 K into mortgage now only saves you $500 per year. When mortgage interest rates are low grow your savings. When they are high (7%+) pay down your debt. We are a long way from 7%. Of course this depends on lots of other factors such as how long left on ammoritization, job security, other savings, how tight is the budget etc... If you are in a 45% tax bracket you are making good money so perhaps find the mortgage money somewhere else. Growing the TFSA gives you more options down the road.
Best wishes.

 

[JLA91]

I wouldn't put the TFSA into mortgage or RRSP. Keep the TFSA intact and invest in Canadian Banks with growing dividends which should give you at least 3.5% and grows almost every year. Max the TFSA. If you put into RRSP you'll get that wonderful refund but you'll only be a few grand ahead once you pay tax on the RRSP/RRIF withdrawls. Your money is then tied up. Mortgage rates will grow slowly but not by much. Putting 20 K into mortgage now only saves you $500 per year. When mortgage interest rates are low grow your savings. When they are high (7%+) pay down your debt. We are a long way from 7%. Of course this depends on lots of other factors such as how long left on ammoritization, job security, other savings, how tight is the budget etc... If you are in a 45% tax bracket you are making good money so perhaps find the mortgage money somewhere else. Growing the TFSA gives you more options down the road.
Best wishes.

If he puts 20k down on house now,and mortgage rates rise to 7 percent down the road,isnt that 20k now saving interest at a 7 percent return?The value of paying down your mortgage can only be given a definite number once the load is completely paid off and the interest savings can be fully calculated to give hindsight unless I am missing something?

 

[CPA Candidate]

If he puts 20k down on house now,and mortgage rates rise to 7 percent down the road,isnt that 20k now saving interest at a 7 percent return?The value of paying down your mortgage can only be given a definite number once the load is completely paid off and the interest savings can be fully calculated to give hindsight unless I am missing something?

You are correct; if rates increase then the return on paying off a chunk of the mortgage increases too. In these sorts of situations you need to make assumptions about the future.

Over 10 years, I'd expect a TFSA to make better returns than paying off a mortgage at 2-4%; but it could give your more grief. Generally, I prefer options that give you liquidity and options. You have to be fairly certain you won't need the money to put it on a mortgage.