Keep your money

You will probably already know this, but, it always helps to be reminded.

You do what your parents did, you save up 25% and you buy a house, the remaining 75% of the purchase cost is taken as a first mortgage.

House cost : $200,000
Deposit : $50,000
Mortgage : $150,000, amortization over 25 years, rate = 6%

This will mean that your monthly payments, excluding taxes, utilities, beer and cheese will be $959.71

25 years, 12 payments a year, your $150,000 loan costs you $287,913 and of course, not forgetting that in Canada there are no tax breaks on mortgages, that money is after tax money, if you pay taxes at around 30% you will have to earn around $374,286 to make those payments.

Everything we buy, we buy with after tax dollars. Even RSPs are funded with those discounted dollars, fortunately, the government gives us the taxes back when we save through a registered plan.

So, back to the mortgage, hopefully you realise how much it will cost you and will take the following steps to destroy your mortgage as quickly as possible.

1) Reduce the Amortization period (your monthly payement will go up)
2) Pay Biweekly, not monthly (your net monthly payment will go up)
3) Use that tax rebate (from your RSPs) to pay it off
4) Always be as aggressive as possible with interest rates, shop around
5) Make sure your mortgage is flexible, with good paydown options and no penalties

Item 3 answers the age old question "should I maximise my RSP or pay down my mortgage" and the answer, from the Millionaires Club, is yes. You can do both, maximise your RSP to get the maximum tax rebate, then apply that refund check as a Balloon payment to your mortgage.

Remember, there is no such thing as good debt, the plan is that you should keep your money, not give it to the banks or credit unions in the form of interest payments.