Tax Refund? Consider Paying Your Mortgage Down

You work hard for your money, so if you have a tax refund or some extra income coming your way, why not make it work for you? If you have invested in RRSPs as a tax deferral strategy and have received a refund, consider putting these funds towards the principal balance of your mortgage. 

By doing so, you could aggressively reduce your amortization period and save a significant amount of interest. 

Let’s look at this scenario:

$500,000 Mortgage, 5-year fixed term at 4.44%, 25-year amortization period. Tax Refund of $5000 per year. Apply this towards your principal balance every year for 5 years, and you will reduce your overall Amortization period by over 5 years! Plus, the effective total interest savings over the entire amortization period will be $75,000. 

If you’re a First Time Buyer, consider investing in an FHSA (First Home Savings Account). This will have the same tax deduction effect as an RRSP but you can use these funds towards your down payment and it remains tax-free when you sell your primary residence. Then, if you put the tax refund towards your mortgage, you’ll also save more in the long run. Do you earn bonus income? Consider using it this way as well.

I know, it’s tempting to spend your tax refund on something fun… after all, you’ve earned it and life hasn’t been easy lately! Everyone’s priorities are different and that’s totally okay. If you’d like to run some scenarios for your specific situation, please reach out!

I’m able to meet by phone, Zoom or in-person at my new office location at 208 St. Andrew St. West (right across from Scotiabank beside the Red Door Café)… stay tuned for my Grand Opening details!