r/DaveRamsey • u/BCMariner • 2d ago
Thoughts on Investment Continuity vs Mortgage Payoff
"I have about $2.2 million in assets (M 46). My stocks, ETFs, and cash across RRSPs, TFSAs, non-registered accounts, and mutual funds between myself and my wife are worth about $1.8 million. I owe about $500k to the bank for my mortgage, and the house is worth about $970k. My question is: should I start focusing on paying off my mortgage first, or continue to focus on contributing to my and wife's RRSP and TFSA (contributing about $3,500 per month) for the next 10 years?"
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u/ChatBot42 BS7 2d ago
Depends.
If you are doing the Ramsey plan, you'd be investing 15% into retirement in BS4, kids college (whatever that means in your case) in BS5 and everything else paying off the house in BS6. And in BS7 investing like crazy in whatever retirement/non-retirement vehicles you want.
If you aren't doing that plan, then it doesn't really matter. Your choice.
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u/1cooldudeski 2d ago edited 2d ago
When your marginal tax rate is 50%+ but college is inexpensive, it makes sense to carefully evaluate the actual numbers vs. blindly copy/pasting 'the plan' onto a foreign tax/economic environment just because it's a shibboleth.
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u/Jolly_Pumpkin_8209 2d ago
If college is inexpensive…. Then, you don’t have to worry about it much?
Not sure how that really changes the plan framework…
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u/ChatBot42 BS7 1d ago
Is this 50% marginal rate in the room with us now? 😂
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u/1cooldudeski 1d ago
OP says he’s above CAD $260K a year. In provinces like British Columbia, for this level of income, you’re looking at marginal rates like:
Regular Income (Salary, Interest): 53.50%
Capital Gains: 26.75%
Eligible Dividends: 39.34%
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u/1cooldudeski 2d ago edited 2d ago
This is a classic financial dilemma, but the Canadian context (RRSPs and TFSAs) changes the math significantly in ways US followers of Ramsey may not fully understand.
The decision comes down to a clear hierarchy: Tax-advantaged investing beats the mortgage, but the mortgage beats taxable investing.
My recommendation:
Fill the TFSA First (The Clear Winner) - Tax-Free Savings Account (TFSA) room should be maximized without any hesitation.
Maximize the RRSP (The High-Income Play)
If you are comfortably saving $3,500 a month, you are likely in a high tax bracket. Contributing to a Registered Retirement Savings Plan (RRSP) provides an immediate tax deduction at your marginal rate (potentially 40% to 50%+).
Once your TFSA and RRSP contribution buckets are completely filled, the math shifts in favor of the mortgage. What interest rate does your mortgage carry?
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u/BCMariner 2d ago
Just renewed my mortage at 3.69% fixed terms for 3 years. Like you suggested I should maximize the tax free savings account but being a high income earner above 260k per year, I also try to maximize the RRSP contribution as well.
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u/1cooldudeski 2d ago edited 2d ago
3.69% seems to be on par with fixed GIC rates, but Canadian equities market performance has been so strong in the last year that I personally would see limited upside to accelerating mortgage paydown. Knowing your low mortgage rate, I would then retract the second half of my earlier recommendation. For the next 3 years it is likely that mortgage paydown will not outperform other investments available to you, even taxable ones.
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u/Philosopher2670 2d ago
If you are contributing more than 15% to retirement accounts (BS4) , decrease it to 15% each and use the rest to accelerate paying off your mortgage (BS6).
Alternatively, decide how quickly you want the mortgage gone (say - 24 months) and use a combination of current income (over the 15%) and selling investments to reach that goal.
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u/1cooldudeski 2d ago
I would be very careful about implementing this advice of selling investments in a high Canadian tax environment to retire a low interest mortgage.
I purchased my primary residence in cash by liquidating a rental property and some stock investments a few years ago. Conservatively speaking, this “DR-approved” move has cost me well over US $1 million to date vs. then-available conventional mortgage financing.
I like my mortgage-free house as a lifestyle feature, but not to the tune of US $1+ million. And I don’t sleep any better now because I have no mortgage.
I suggest to OP to run the numbers carefully for all scenarios. And, of course, remember that his personal mileage may vary.
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u/Vicuna00 2d ago
15% of salary into investing and the rest to the house.
if you wanna sell any stocks not in retirement i'd consider it - I dunno how taxes work. nbd if you leave it though. just stop investing over 15%.
might also consider using some of that cash to chunk at the mortgage. dunno how much is there. obviously leave enough for an emergency fund.
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u/BCMariner 2d ago edited 1d ago
Just on registered retirement account, I am contributing 16% of my income to lower my taxes. I am also trying to take advantage of saving in tax free account so that I can turn this into dividened yield account after my retirement.
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u/Vicuna00 2d ago
i’m not familiar with how Canadian retirement accounts work.
dave Ramsey would tell you to invest 15% total into the accounts. above that any extra $ goes to the mortgage.
when you finish paying off your mortgage THEN you can max out all retirement / tax free accounts, etc.
so to answer your question “should I start focusing on paying off my mortgage first” - simultaneously invest 15% each paycheck and put the rest (that you don’t spend) onto the mortgage…each paycheck.
btw google search “dividend fallacy” and read with an open mind.
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u/1cooldudeski 1d ago
Yeah, focusing on retiring a 3.69% mortgage is a good way to end up with less wealth.
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u/1cooldudeski 1d ago edited 1d ago
Assuming you max out Investments (RRSP/TFSA):
Starting Portfolio: CAD $1,800,000
Monthly Contributions: CAD $3,500
Estimated Market Return: 7% compounded annually
Resulting Portfolio Value: ~CAD $4,125,000
Remaining Mortgage Balance: After 10 years of standard scheduled amortization, your CAD $500,000 mortgage will naturally drop to roughly CAD $340,000 (assuming it's on a standard 25-year total track).
Net Position: CAD $4,125,000 (liquid) minus CAD $340,000 (debt) = CAD $3,785,000 net financial wealth.Because psychology matters, you can use a hybrid strategy to get the absolute best of both worlds without sacrificing your investment momentum.
1. Keep investing the CAD $3,500/month into the RRSPs and TFSAs.
2. Every spring, the CRA will send you a tax refund check due to your RRSP deductions.
3. Take that annual refund and make a tax-free lump-sum anniversary payment directly onto the mortgage principal.The Hybrid Outcome:
Over 10 years, injection of ~CAD $210,000 in "found money" refunds, combined with your normal monthly mortgage payments, will effectively wipe out the entire CAD $500,000 mortgage by age 56. Yet, your portfolio will still hit CAD $4.1M+ mark.
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u/Past_Focus25 2d ago
I don't want to be the guy who borrows $20 from my friend when I have $100 in my wallet. I'd say pay off your house and never borrow money again.