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Discussion Starter · #1 · (Edited)
Hi all, curious what the wise folks on this forum will do with this excess cash in my situation. I’ve recently sold my second property (never rented out and I’ve lived in it for the majority of the time I’ve owned it, designated as principal residence) and after all the expenses and adjustments, and maxing out my TFSA, I will have approx $180k to put towards something.

I’m going on mat leave this year and my income will be half of what I typically earn. Because of this I don’t plan to contribute to RRSP this year other than to match my employer contributions.

I typically contribute enough RRSP to drop from 40.7% marginal tax bracket to 38.2%. This year I contributed a bit more at 38.2% also and could contribute another $18k to fully max out the 38.2% savings. I have $255k RRSP right now invested in mostly ETFs and some stocks, and I have another 30 years ahead of me before retirement. If I do invest the $18k, I should still have around $30k RRSP room left before it’s maxed out.

After the $18k contribution (if I choose to do that), I’d still have $162k to do something with. I could only think of the following 3 options: invest in an unregistered investment account, purchase another property that I believe has potential to make better gains/rental income than my previous property, or pay down the current mortgage on our marital home that I own jointly with my husband, which is currently fixed for another 3.25 years at 1.44%.

Since our mortgage balance is > $1M I am not sure how much additional mortgage I’ll qualify for an investment property. Something I’ll have to ask a mortgage broker about. So that might be out of the question.. although I was carrying both mortgages for the last 7 months and the banks seemed fine with it..

I’m thinking that if interest rates rise rapidly in the future, I’d like to pay down the mortgage as much as possible before we renew in 3ish years. I guess that might cause issues with time horizon for investing the money?

If you were me, what would you put the money towards?

Thanks in advance for any advice or viewpoints, especially in the current climate.
 

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Calculate the capital gains tax on the sale of that property and reserve the money to pay it.

You say you're going on maternity leave? So you have a newborn. Start an RESP and max out the first year of contributions. After both spouses return to work, you're going to look for a daycare. If the national daycare program doesn't get adopted in your province in time, reserve enough money for a year of daycare.

I'd also make sure my residence is secure from any economic changes to your situation. Reserve money for the next 3.5 years of mortgage so you can use it in case you lose your job. If your employment situation is still ok in 3.5 years, dump that money into the mortgage.
 

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I second T's advise.
A cash cushion after getting a RESP fully funded is a good thing.
Or send in the max, and still leave drippings of $2500 per yer until the CSEG well runs dry.

Do not get into a second property with a newborn coming along. Too much risk of heartache with it with the little one sapping your energies.

A cash cushion is important at this stage of your life a HISA and then bleed it into funding TFSA and RRSP as chances come until you are back into the work force again, if that is what you want to get back into.
 

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Discussion Starter · #4 · (Edited)
Calculate the capital gains tax on the sale of that property and reserve the money to pay it.

You say you're going on maternity leave? So you have a newborn. Start an RESP and max out the first year of contributions. After both spouses return to work, you're going to look for a daycare. If the national daycare program doesn't get adopted in your province in time, reserve enough money for a year of daycare.

I'd also make sure my residence is secure from any economic changes to your situation. Reserve money for the next 3.5 years of mortgage so you can use it in case you lose your job. If your employment situation is still ok in 3.5 years, dump that money into the mortgage.
Thanks for the above.

To clarify, there won’t be capital gains - it’s my second property because I moved into my marital home with my husband earlier this year. It’s designated as my primary residence, I’ve lived in it for most of the time I’ve owned it.

We have additional cash on top of this influx of money, so it’s all extra for us. We already have a very robust emergency fund.

I really don’t think I’d be unemployed for 3.5 years based on my background and experience; however we do have enough cash on hand (without considering this incoming amount) to pay the mortgage for roughly 3 years if necessary, before we have to look to our investments.

I’ve also done a cash flow forecast for my mat leave year and we will not be cash flow negative despite my net income being halved.
 

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Discussion Starter · #5 ·
I second T's advise.
A cash cushion after getting a RESP fully funded is a good thing.
Or send in the max, and still leave drippings of $2500 per yer until the CSEG well runs dry.

Do not get into a second property with a newborn coming along. Too much risk of heartache with it with the little one sapping your energies.

A cash cushion is important at this stage of your life a HISA and then bleed it into funding TFSA and RRSP as chances come until you are back into the work force again, if that is what you want to get back into.

I really need to start looking at the RESP thing!

True, I’ve forgotten to consider the fact that I will have no energy whatsoever to do an RE transaction and find a tenant.. good point!

I’ve responded to the other post as well, but this money is on top of at least $150k in cash reserves between my husband and me.. so we really do need to deploy some of this cash into investments I think.
 

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I am guessing you have maxed out your TFSA but if you haven't done so that would be a logical place to start. You can also put money in your RRSP and save the credits for future years. This will get your money invested sooner (if you wish to do so) and allow you to allocate less money to RRSPs for the 3.5 years leading up to the mortgage renewal. Doubt either of these options will equal $180k but may not have been considered.
The RESP is probably the best option but again would not equal a large amount.
 

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Don't forget to pay down as much of your mortgage as much as you can when your term expires in 3.5 years. And when you renew, go variable rate. So in the meantime, invest that money in something low risk, like a GIC or a even broad market ETF with dollar-cost averaging.
 

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Discussion Starter · #9 ·
Don't forget to pay down as much of your mortgage as much as you can when your term expires in 3.5 years. And when you renew, go variable rate. So in the meantime, invest that money in something low risk, like a GIC or a even broad market ETF with dollar-cost averaging.
That’s the plan if rates increase significantly when our term ends!
 

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Discussion Starter · #10 ·
I am guessing you have maxed out your TFSA but if you haven't done so that would be a logical place to start. You can also put money in your RRSP and save the credits for future years. This will get your money invested sooner (if you wish to do so) and allow you to allocate less money to RRSPs for the 3.5 years leading up to the mortgage renewal. Doubt either of these options will equal $180k but may not have been considered.
The RESP is probably the best option but again would not equal a large amount.
Yes maxing out my TFSA will be my first step! RESP for sure, and I’ll think more about RRSP.. not much left in room but just thinking about how it’s stuck there for 30 years, and when it gets too big the tax consequences at retirement.
 

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Nobody knows what the tax rates will be in 30 years. A lot of changes can/will happen in 3 decades. . The consolation is such that you also get 30 years of tax sheltering. If you plan to use the money for the current mortgage or for a mortgage in the future it makes sense to save the bulk in a HISA. Paying off debt is a guaranteed rate of return.
 

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This might not be the most tax or growth efficient but for us it was psychologically optimal:
Invest 20% of income (at regular income levels through mat leave) in:
Match RRSP & RESP
Then TFSA
Then RRSP
(If all maxed, then non-reg)
Chunk everything else to the mortgage.
No mortgage payment was like clouds parting for us.
 

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That’s the plan if rates increase significantly when our term ends!
Do not wait for rates to rise -- just go ahead and pay it down. You probably have the option of paying small extra amounts and of increasing your weekly/biweekly/monthly payments. You may also have the option of switching from monthly to more frequent payments. You should maximize all of these and not wait for an anniversary or renewal.
 

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... I’ll think more about RRSP.. not much left in room but just thinking about how it’s stuck there for 30 years, and when it gets too big the tax consequences at retirement.
Being too rich and comfortable in retirement is a strange thing to avoid if being in a higher tax bracket is the only thing you're worried about. But I know what you mean. I started a thread discussing the optimal RRSP/RRIF balance. So if you want to stay in the lowest tax bracket during retirement, $554,000 (in 2020 dollars) is the balance you want in 30 years (depending on how much the lowest tax bracket amounts change in that time). Stash the rest in your taxable investment account.
 

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Discussion Starter · #16 ·
Do not wait for rates to rise -- just go ahead and pay it down. You probably have the option of paying small extra amounts and of increasing your weekly/biweekly/monthly payments. You may also have the option of switching from monthly to more frequent payments. You should maximize all of these and not wait for an anniversary or renewal.
Why is that?
 

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If your mortgage allows for lump sum payments or increased payments without additional cost you are lowering the overall interest paid on the life of the mortgage. If the rate on your HISA is less than your current mortgage rate you are definitely not getting as good of return.
 

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Discussion Starter · #18 · (Edited)
If your mortgage allows for lump sum payments or increased payments without additional cost you are lowering the overall interest paid on the life of the mortgage. If the rate on your HISA is less than your current mortgage rate you are definitely not getting as good of return.
My mortgage is fixed at 1.44% for the next 3+ years, which is why I am hesitant on being too aggressive on prepayments rather than investing the money in a more conservative manner. When I first renewed the mortgage of my previous property, I learned that I am allowed to make a lump sum payment of any amount to the mortgage balance with no restrictions.. at least with CIBC. That’s what I was hoping to do at the end of 3+ years’ time.
 

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Hi all, curious what the wise folks on this forum will do with this excess cash in my situation. I’ve recently sold my second property (never rented out and I’ve lived in it for the majority of the time I’ve owned it, designated as principal residence) and after all the expenses and adjustments, and maxing out my TFSA, I will have approx $180k to put towards something.

I’m going on mat leave this year and my income will be half of what I typically earn. Because of this I don’t plan to contribute to RRSP this year other than to match my employer contributions.

I typically contribute enough RRSP to drop from 40.7% marginal tax bracket to 38.2%. This year I contributed a bit more at 38.2% also and could contribute another $18k to fully max out the 38.2% savings. I have $255k RRSP right now invested in mostly ETFs and some stocks, and I have another 30 years ahead of me before retirement. If I do invest the $18k, I should still have around $30k RRSP room left before it’s maxed out.

After the $18k contribution (if I choose to do that), I’d still have $162k to do something with. I could only think of the following 3 options: invest in an unregistered investment account, purchase another property that I believe has potential to make better gains/rental income than my previous property, or pay down the current mortgage on our marital home that I own jointly with my husband, which is currently fixed for another 3.25 years at 1.44%.

Since our mortgage balance is > $1M I am not sure how much additional mortgage I’ll qualify for an investment property. Something I’ll have to ask a mortgage broker about. So that might be out of the question.. although I was carrying both mortgages for the last 7 months and the banks seemed fine with it..

I’m thinking that if interest rates rise rapidly in the future, I’d like to pay down the mortgage as much as possible before we renew in 3ish years. I guess that might cause issues with time horizon for investing the money?

If you were me, what would you put the money towards?

Thanks in advance for any advice or viewpoints, especially in the current climate.
I think the real heart of your question is where can you get an after tax return better than 1.44% over the next couple of years. There are lots of opinions on best tax strategy etc but it's all hypothetical without a return opportunity. So I would start there - what's the investment, constrained by the holding period, and then determine which account makes the most sense to do it in. If one wants to be thorough about it adjust the return opportunity for risk when comparing to the mortgage pay down base case. And if one wants to be really thorough include a cost on the mortgage pre pay for the option value of losing the cash to deploy quickly over the next couple of years.
 
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