Liquidate TFSA to pay off Mortgage or renew at 5.7% 5 yr Fixed?

[carolyntormala]

32 M

Net $4000 a month after expenses currently.

Federal DB Pension. (50% in my mid 40s)

No debt besides the mortgage.

Wife is not working and soon to be stay at home mom with baby on the way.

Mortgage up for renewal 2 Feb 2024 with 200k principal left.

TFSA: 160k (5.2% yield, all Canadian Blue Chip and ETFs)

CASH: 60k

Can’t decide if I should liquidate the TFSA and be mortgage free or renew at 5.7%?

If I liquidate I would aim to contribute 48k a year back into TFSA in one ETF like XEQT.

I planned to just renew the mortgage but now with a baby on the way and being more busy with work I’ve been toying with the idea of just paying the mortgage and living life a little more and stressing less over saving… I’ve been very “cheap” and aggressively saving since I was 16.

Any one that has had a decision like this I’d like to hear what you chose and how you feel about it now.

 

[yodamama]

@carolyntormala I'd pay it off. You can fill it back up really fast without a mortgage payment. Good luck.

 

[jennyfer88baker]

@carolyntormala You should be able to renew at less than 5.7% first off. If you had cmhc insurance you can get something around 4.7-4.8%.

I would not sell the investments, if anything maybe just put 15k onto the mortgage and double up payments.

 

[carolyntormala]

@jennyfer88baker No CMHC, I’m going to look for more rates. I need to call my current provider tomorrow to get the latest.

I’m leaning this way, if I can get a lower rate and pay 20% a year down for 3 yrs it’s paid off. I won’t be saving much in the time frame for investing but at least my TFSA is still compounding.

 

[rr101]

@carolyntormala We have an offer for 4.9% with EQ, similar principle and no CMHC. Definitely look for more rates

 

[1986kari]

@carolyntormala I would liquidate and be mortgage free. This frees up money for your new changing lifestyle and you can quickly save back up based on what you said. But you will not have the stress of owing someone something. You will be debt free. The safety that brings with it will be wonderful. Congratulations on your money situation and your growing family!

 

[carolyntormala]

@1986kari Yes the stress relief from being debt free is the biggest upside I see, I just don’t know if I’ll be become stressed from not having savings then lol. Thank you

 

[melsha]

@carolyntormala Pay the home off.

Get a HELOC.

If there is an emergency where you need cash ASAP and you haven't built up enough reserves, you can pull from HELOC. It's a much. higher interest rate but unless that emergency happens before any reserves are built up, you'll be fine.

 

[zariana]

@carolyntormala Pay it off, and use the 'mortgage payment' each month to refill your TFSA. Keep that discipline and it'll take no time. Your savings is now a paid-off house you can borrow against.

 

[jsnowflake07]

@1986kari Yup, always pay off debt first. That peace of mind, woot!!

 

[mocoman97]

@carolyntormala I’d probably take $30k from cash and $60k out of the TFSA and get the mortgage down to $110k at renewal.

Then just take your time whittling away at it with a couple lump sums at the end of the next 2 yrs.

You should be able to get a 5.5% 3 yr rate at the moment without too much difficulty.

 

[ncfelix]

@carolyntormala Pay it off. No risk 5.7 return tax free.

 

[stephenjob]

@carolyntormala If you are deciding between two similar choices, pick the simplest option. In this case, pay off your mortgage. One thing off your plate.

 

[paperdimension]

@carolyntormala I think you’d make more in the long term by staying in the market and keep paying the mortgage but obviously there’s something to be said about being mortgage free.

We had the choice of paying a huge chunk of our mortgage a number of years ago due to an inheritance. My husband wanted to keep most of it in an account, I wanted to pay the mortgage. We split the difference and did both. We were able to pay the mortgage off a couple of years later. I was happy with the decision and no regrets.

One thing I saw someone say is that they found saving harder with no mortgage - in the sense that they had gratification in seeing the mortgage balance decline, and now that it’s gone is harder than they expected to stay motivated to save. But everyone is different. I think you should consider your long term goals and make a decision from there.

(Edited to add: we have a mortgage again as we are now in a house and while we do pay a bit extra each month, I would not personally take my TFSA to pay off the mortgage. We have about 1/3 of our remaining mortgage value in TFSAs and that money is staying in the market in the long term.)

 

[carolyntormala]

@paperdimension That is true, if I do half and half and a 3 yr I could pay it off in that timeframe and still have to goal to add to the mortgage with yearly savings. I can do up to 20% a year of the original principal.

 

[jo412]

@carolyntormala Was going to suggest doing some of both. That way your opportunity cost within the TFSA is partially maintained, and you still have a nice emergency fund/nest egg. We paid our mortgage off early, and there's a lot to be said for the peace of mind that brings. Since we had no mortgage already by the time COVID hit, we weren't sweating when one of us got laid off (the other one worked in health care!).

 

[crawdadr]

@carolyntormala Thats what I'd do. Renew but pay the 20% each year snd if you have to liquidate $10,000 here or there to do that, it's better than liquidating all

 

[merry00]

@carolyntormala Similar age and situation as you. Not quite as much cash/stocks (good job dude). If suggest doing half or do the math to get a monthly payment you are comfortable with. That way you have the reserves if you need it without taking on additional debt and your monthly overhead goes down. For example, I've been paying rent of $700 a month since I moved out. If my mortgage was to drop to that, I wouldn't know any different.

 

[1soloved]

@carolyntormala Im in the keep the TFSA camp. Even if my mortgage is slightly higher than the TFSA, im not touching it

My reasoning is permanently "lost" contribution space.

Lets say you have 100K in your TFSA. If your expected ROI is 5%, and your mortgage is 6%, it costs you 2% a year.

For that 1K a year, you are gaining an additional 5K in TFSA room, that you otherwise would not have had.

So what is 5K a year worth in TFSA space?

If your marginal tax rate is 40%, thats an additional $250 in tax that you will have to oay every year (or 125 in cap gains).

I also have a higher risk tolerance, good job security, and willing to adapt lifestyle in the short term during periods of low returns.

Just another way of thinking about things.

 

[carolyntormala]

@1soloved That didn’t even cross my mind, definitely something to add to the pros of keeping the TFSA invested.