A reader recently asked me: What would have the biggest payoff, putting $5,000 in a savings account or using it to pre-pay your mortgage? It’s a good question, and one I haven’t thought seriously about because I don’t have a mortgage, but I was in a math mood this weekend so I decided to work it out. Assumptions: You buy a $500,000 home (the average price in Canada) with 10% down You have a $5,000 surplus that you can use to either put in savings or pay towards your mortgage Your savings account grows tax free (TFSA) You earn an average rate of return of 5% on your savings because you invest in the stock market but aren’t that great at it You secure a mortgage interest rate of 2.39% for the first 5 years of your mortgage and 2.99% for the 5 years after that Your house appreciates at […]
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