23 June 2010

Now, suppose you make a $100 lump-sum payment. You’ll save $4 in interest.
Not bad, indeed! Especially, when you think of what you’d have to make on a taxable investment to generate the same return.
If you’re in a 40-per-cent tax bracket, you have to earn 6.7% on a GIC to get 4% in the end (after all the taxes). And if you can find a GIC that pays at least close to 6.7%, please, tell us.
We’re speaking about guaranteed returns. Of course, you may do better in the stock market, but in the same time you can also do a lot worse. The advantage of paying off your mortgage is the guaranteed return.
You may ask then: “Why don’t more people do it?” Heinzl thinks it’s because managers don’t get paid for such pre-payments, that’s why advisors don’t push them.
Yes, there are many alternative investments available, but it’s only in case you can risk that much. It’s wise enough to talk to your financial advisor to get more information.