28 March 2014
Of course, we all know why it happened – interest rates remain extremely low. In case of most Canadian banks, the prime rate (which affects variable rates) is 3%. In the same time, you can also get a variable rate mortgage at 2.35%. If you prefer five-year fixed loan, you can get 2.94%.
So why paying off mortgage faster when you can invest into something different with higher rates?
Today it’s possible to invest in the market using the funds you would direct into your mortgage. But here you should understand the difference between your tax deductible and not-tax deductible investments, such as the mortgage for your principle residence. If you’re getting money for investing, you may write off the interest.
But for our clients it might be a good idea to invest some money into their business or complete renovation, since once you prepay your mortgage you might need to pay penalty and lose your great rate to re-borrow money against your home equity in the future, unless you have a re-advancable mortgage or home equity line of credit.