With interest rates hovering near historic lows, many Langley homeowners are wondering whether to take advantage of the low rate environment and pay down their mortgage faster or divert money elsewhere while they are paying less interest on their home.
There are two sides to this argument, and the answer ultimately depends on each household's unique situation, according to Gurbinder Mander, branch manager at Envision Financial.
Some of the factors that need to be considered are the size of the mortgage, how long is left on the term of your mortgage, and additional expenses you may have.
"For households with large mortgages and long amortizations, it may make more sense to pay more now," said Mander. "The advantage of paying more now is that, when rates do eventually increase and homeowners have to renew their mortgage at a higher interest rate, the loan principal will be lower, resulting in a smaller amount on which you will be paying interest at a higher rate.
"Paying more now also means that you're building your asset base and net worth while reducing debt. The more you pay and the sooner you pay it, the faster you see gains."
However, if you have a smaller mortgage or a number of other expenses, the same logic can be used for paying less on your mortgage today.
"We all have a number of saving needs, such as saving for retirement, putting money away for a rainy day, or contributing to an RESP to help put our children through school, and sometimes these needs compete with each other," said Mander. "But in an environment when the return on investments is also low, the decision on where to put your money can become clearer if you look at other factors."
"Take, for example, a couple that wants to help put their children through college," he explained. "With the immediate 20 per cent return on your contributions through the Canadian education savings grant, it may be more beneficial to divert money to a registered education savings plan.
"Similarly, depending on your tax bracket, it may make sense to contribute to an RRSP and use the tax refund to pay down your mortgage.
"Or, if you are looking into building an emergency fund or for some future purchase, then it could be better to contribute to a tax-free savings account."
Mander pointed out that, while each situation is unique, the big picture can become less confusing with the help of a financial expert.
"It can be hard to fit all the pieces together yourself," he said. "Make sure you talk with an experienced expert who can help you make the best financial decisions for your family."