Give Me Back My Five Bucks

Why I’m reducing my mortgage payments

One of the ideas I’ve been wrestling with for the last few months is my mortgage payments. I’m currently paying $660 bi-weekly, which is approximately $110 more than my minimum payment. I was happily paying this extra money until I realized that early retirement was still my number one financial goal. And if it’s the most important financial goal for me at the moment, why wasn’t my budget reflecting my priorities?

I thought about this for a long time, debated the merits of mortgage payments vs. RRSP with friends, tried to find money in my budget, got jealous because BF has a pension plan waiting for him in less than 20 years… and then I decided to make my move.

Related: What does retirement mean to you?

The extra $110 I’m putting towards my mortgage on a bi-weekly basis is gone. Instead, I will funnel the money into my RRSP/TFSA. That’s an extra $2,860 I can save in 2014, and will help me with my goal of saving at least $750/month towards retirement this year. With the tax refund I will receive, that money will go towards my mortgage as a lump sum payment.

I think this is an appropriate move because even with just my accelerated bi-weekly payments, I will be finished paying off my mortgage before my desired retirement age. And if that’s the case, it makes sense to put extra money into my retirement accounts now so that I can benefit from compound growth for the next 25+ years.

Take a look at the chart below. The dark blue represents accelerated bi-weekly payments without any additional prepayment options. That cut my original 30-year mortgage down by 4 years.

What I have been doing for the majority of last 2.5 years is what the orange represents: accelerated bi-weekly payments with an additional 20% prepayment. That knocked my mortgage down even further, to 19 years. It’s hard to give that up.

I’m anxious about reducing my mortgage payments, because my plan was always to pay down my mortgage as fast as possible. It doesn’t feel right to pay down debt at a slower rate than I’m capable of. But the past 2.5 years of home ownership have taught me a lot. Being a single homeowner is difficult. It’s hard to get ahead, and planning for the future is tough on a one-income household – especially a future that includes early retirement without a company pension. I’m comforted by the fact that my tax refunds will now go towards my mortgage, so at least I’ll continue to over contribute in some way. :) And, by changing the way I save my money, I believe I’m keeping myself on track to achieve my financial goals.

Have you ever had to choose between paying down a mortgage faster or contributing to retirement?

Author: Krystal Yee

I’m a personal finance blogger and marketing professional based in Vancouver. I’m a former Toronto Star (Moneyville) columnist, author of The Beginner’s Guide to Saving and Investing, and co-founder of the Canadian Personal Finance Conference. When I’m not working, you can usually find me running, climbing, playing field hockey, or plotting my next adventure.


  1. Congrats on that decision – it seems to be the right one! It seems like I’m reading a lot about people pulling back from accelerated paydown loans (whether its student loans or mortgages) and it’s awesome to see people make educated and informed decisions that work for them.

  2. I think that is a great idea for your situation. Situations are constantly changing and your financial actions need to reflect your main goals. I think you are going to benefit greatly from the switch and I’m totally excited for you!

  3. Ramona says:

    I look at mortgage/retirement savings quite differently, but I understand the conflict very well. I believe it is next to impossible to try and be aggressive with mortgage pay down and save for retirement. Therefore I chose mortgage. Now I am 50, mortgage free for a few years, and throwing everything into RRSPs. I understand I have lost some of the time value, but it is extremely comforting to the mind to be mortgage free. And I know that if I were to sell my home, the money (after selling expenses) is 100% mine. That’s comforting too, and a form of retirement savings in its own right.

    Do what makes sense to you, and try not to worry what others say. It comes down to a personal choice in the end. Good luck!

    • Krystal Yee says:

      I would love to be mortgage-free as soon as possible… but I agree with you. It’s extremely hard to pay down a mortgage AND save for early retirement. Especially on one income. I picked my mortgage for the last 2 years. Now I’m choosing retirement. Maybe in two years I’ll change my mind again, depending on what happens. Congrats on being mortgage-free! I’m sure it’s an amazing feeling. :)

  4. Anonymous says:

    I am in the same situation as you and have recently made a similar decision – so think you’re on the right track. I think if you have a stable job and are employable and don’t have an unmanageable mortgage moving to retirment savings and thinking towards the future is a good strategy. Also, because interest rates are so low you don’t save as much on interest by paying it down aggressively. Hopefully you can find some investments that match your risk tolerance levels that can outperform the interest rate on your mortgage you will be ahead. A strategy I took in terms of reducing my mortgage payment was knowing treating a portion of my TFSA as being able to be used for emergency – ie making payments if you are temporarily out of work. This worked to give me some comfort in knowing that I could cover my debts in the event of an unplanned emergency.

  5. This is something I’ve given a lot of thought of too. Mainly because I really like Dave Ramsey when it comes to financial advice. I think as long as your making some extra payment that’s good. Also, you’re not going to be in your condo forever and I’m sure the value has gone up. If the Canadian market is anything like the American one, I know in the two years I’ve owned my home the value has risen.

  6. Great decision Krystal :) I’ve always maintained paying the minimum on my mortgage so I can invest the extra savings. A few thousand dollars more each year in a TFSA or RRSP can make a big difference in 20 or 30 years from now. North American stock markets experienced double digits returns in 2013. My calculations predict we will see another year of solid growth this year :D So I wouldn’t be anxious about reducing the mortgage payment if I were you.

    Without debt I wouldn’t have all the wonderful things I have today like my home, my car, or my college diploma and the earning potential that comes with it. Debt has improved my life for the better. And I’m sure it has done similar for you :) But too much debt is unnecessary and not wise. So we have to try and find the right balance, and I believe you have found yours by making this switch :) Businesses call it the “optimal capital ratio,” which is simply the best debt to net worth ratio for a company that will maximize its value. Not too high that it can bankrupt the firm, but not too little either that it’s holding back the company’s ability to expand, grow their sales, hire more employees, etc, all of which are commonly funded by debt, eg: bonds.

    I have a feeling 2014 will be a great your for you financially :)

  7. Cassie says:

    I’m with you on this one, I did the exact same thing last summer. I found after reducing it though that the money ended up going to places I didn’t originally intend it to (renos) rather than to my retirement. I’m bumping up the retirement contributions automatically deducted from my pay cheque at work this year so It’ll force my contributions into retirement rather than getting poached for other purposes.

    • Krystal Yee says:

      Yeah I was scared of that too – reducing the mortgage payments, and having that extra money just get absorbed into my budget. So I bumped up my automatic RRSP deductions just to be sure I didn’t get tempted to spend that $$ on something else. :) I probably would have been okay making manual contributions, but this way is much easier, and I know that the extra money is going towards its intended purpose.

      • Cassie says:

        Glad to hear it :) Bumping up my automatic contributions is one of my goals for this year, so hopefully the bleeding of excess cash will stop shortly.

  8. SP says:

    Given your goals (and your mortgage rate and expected earnings), this seems really smart. It is easier mentally for me to target something with a very specific target (mortgage = 0) versus a moving target (retirement = enough?) but that doesn’t mean it is the smartest way to approach my finances.

  9. I’m curious if you compared the compound savings over 25 years versus the interest savings you’ll lose by not paying the mortgage first.

  10. It all comes down to the math… it’s all savings and not having a mortgage payment when you retire means you can retire on less money. I assume that you are expecting a higher return on the funds from investing in your retirement funds versus the rate you have on your mortgage? (Highly likely, especially when taking into consideration the tax aspects of RRSPs!)

    • Krystal Yee says:

      Well as of right now, over the last 2.5 years I’ve had my mortgage, my RRSPs have provided me a higher return than my mortgage rate. I don’t know if that will change in the future (it likely will), but I think the odds are that when I finally become mortgage-free, I’ll have an overall higher return on my investments.

  11. Tara Zee says:

    I think as long as your loan interest rate is reasonable, it makes much more sense to save for retirement than to pay down the house. As a single woman, if finances get rough, you could always rent out your place and become a boarder in someone’s house which would cover your mortgage. But the money you contributed to your retirement will still be compounding in your favor. :)

  12. Richard says:

    When I first got a mortgage I took the maximum payment increase (20%) in the first year and other than that invested as much as I could. At the time it was a good decision because the benefits of paying down a mortgage are pretty much guaranteed.

    Over time my portfolio grew and at this point it could pay my living expenses for several years if I was spending the capital. Even at a sustainable withdrawal rate it would take care of a respectable portion of them every month. That has made me comfortable with taking on more risks and investing as much as possible made me want to invest more.

    I didn’t increase the mortgage payments again after that. Refinancing to a lower rate with the same payments did accelerate things with about 14 years left to pay it off. But I sold this house this month. With that initial cash gain plus the cash I save every month all getting invested I expect very good progress and within 10 years the investment returns from this move could be enough to cover my rent.

    With a mortgage or a rent liability, as long as I have enough options to handle any short-term issues I know that I’ll get a better result from investing as much as possible right now. It’s easier to do that knowing that if a major expense comes up unexpectedly my hardest decision will be which account to pay it from.

  13. Thank you for sharing the article. It’s vry useful. Hope to hear more from you.

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