Lump Sum Payment Strategy / Use your RRSP refund pay down your mortgage

Here is a great way to use your tax refund to repay / pay down your mortgage. It does make a difference.

But you still have to live. I recommend using 1/2 of it for this and the other 1/2 for something you NEED, not want.

Lump Sum Payment Strategy

Tax Season is fast approaching and the average Canadian tax refund is approximately $1600. An excellent use of these funds would be a lump sum mortgage payment. If a client was to do so they could save thousands of dollars in interest over the life of their mortgage. For example:

Mortgage Amount                                                    $300,000

Mortgage Interest Rate                                            3.25%

Pre-Payment                                                          $1,600

Approx. Interest Savings Over 25 years                    $1,600 x 3  = $4,800

The above savings might seem trivial if looked at as a one-time event, however if you continue this strategy on a yearly basis they could save over $17,000 in interest over the life of their mortgage. Additionally, this would help you become mortgage free almost 5 years faster.

***note the above calculations are based off a 25 year amortization, a higher interest rates would increase the savings***

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