The deadline to contribute to your RRSP this year is March 1. Your home may be the perfect tool to pay yourself first and grow your net worth.
Many homeowners feel caught between competing financial priorities – paying down their mortgage and keeping up with monthly bills often means retirement savings take a back seat. With the right plan in place, it may be possible to simplify your debt, reduce interest costs, and save for retirement.
In 2021 the average house price in Canada increased almost 18%. Tapping into the unused equity in your home is an effective way to save money and grow your net worth. Here are a few ways to make this happen:
If there is enough equity in your home, you can borrow to invest in your RRSP if you have the contribution room.
Consolidate your high-interest debt such as credit cards, car loans and other consumer obligations and roll it into a low-interest mortgage. Very often, this strategy has a dramatic positive effect on monthly cashflow, and by reducing the number of payments you have to manage each month, makes life simpler – and who doesn't love that?
Combine your mortgage refinance with a pre-authorized monthly contribution to your RRSP, and watch your retirement savings grow! For instance, let’s say you saved $750 a month by refinancing your mortgage and paying out other debt. If you took $500 of that $750 and invested it each month, that’s $6,000 closer to your goal each year. If you invest $6,000 each year for 20 years, with a rate of return of 4%, adjusted for inflation*, you’ll have $193,385 saved for retirement! And by setting up a monthly contribution schedule, by the time the RRSP contribution deadline comes along next year, you’ll have a sizeable contribution already.
For some homeowners, this is a great way to save more and pay less – not only can you make your monthly debt payment smaller and save on interest, you also save for retirement—all in one! Manage your debt, save more for retirement, and enjoy a new financial life. I’d love to help you crunch some numbers and assess your situation.
*Assuming an inflation rate of 2% per year.
In case you missed it...
On January 26, the Bank of Canada announced that it would continue to hold the overnight rate at .25%. A rate hike, however, seems all but inevitable in the near future. If you are considering refinancing or have a variable-rate mortgage a proactive approach is far better than a reactive one – let’s have a conversation now before rates begin to increase so you have plenty of time to weigh all your options.
If a new home purchase is on the horizon, I strongly suggest getting a mortgage pre-approval. Knowing exactly how much you qualify for and what your interest rate and payments will be takes the guesswork out of the equation. A pre-approval locks in your rate for anywhere up to 120 days, depending on the lender, so you’re protected if rates do increase, which economists are predicting is likely. You’ll also be spared the disappointment of falling in love with a home you can’t afford and once you find the perfect home within your budget, you can bid with total confidence. I’m here to help you achieve your short- and long-term home ownership and wealth building goals. Get in touch anytime!