While we’re on the theme of prepayments, here’s another prepayment idea.
This year’s average Canadian tax refund is $1,506 according to Canada Revenue Agency (Source: FP).
That’s enough for a shiny new TV, laptop, trip to Vegas or…a mortgage pre-payment.
If you have no higher-returning uses for the money, why not plop that hard-earned refund down on your mortgage? A $1,500 lump sum pre-payment is a risk-free investment that will save over $2,300 in interest over the life of your mortgage.*
The best part is, unlike earned interest (from a GIC or traditional investment), you don’t pay tax on mortgage interest you save.
* Example based on a 25-year amortization and 3.99% interest rate.
It is so sadly Canadian – to rejoice that we won’t be taxed for interest we pay!
LOL. Mike, imagine if you walked by a bank and they had a sign in the window advertising a risk-free investment yielding 5-6%. The line of investors would be wrapped around the building because (here’s the sad part) there are very few alternative investments with that kind of risk-adjusted return.
I think a lot of people (myself included, until recently) also don’t realize the benefit or ‘return’ (for lack of a better word) of the improved cash flow of not having a mortgage.