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One of the easiest ways to achieve Financial Freedom is by reducing your monthly debt payments. Step 1: Whether your debts are home mortgages, auto payments, car and home insurance, credit card debt, school loans - the best way to deal with these debts is to pay them off as quickly as possible. If you do not have the cash to pay down the principal amounts the next best thing is to consolidate and reduce the interest rates paid. And the best rates can be found by shopping around. Even if you choose not to switch your current mortgage or loan provider, a better-quote will give you the bargaining power needed to renegotiate a better rate with your existing provider. It is amazing how motivated your mortgage lender will be when you have a competitor's quote-in-hand. Most lenders will meet and beat any offer - since keeping your business - even at a reduced rate - is better than losing your interest payments completely. Step 2: Canadians can use their RRSP to completely pay off their mortgage. Once you have reduced your debts, begin putting your maximum allowable into your RRSP. Why ? As soon as your RRSP equals the amount you owe on your mortgage - you can set up what is called a Self Directed RRSP Mortgage and use the RRSP to completely pay off the mortgage. You then set up a plan to pay back your RRSP over the next 25 years. And here is the best part - you pay interest on the RRSP Mortgage to yourself - not the bank. For example, if you set up a 10 year RRSP mortgage ammortized over 25 years you can be paying yourself 8% interest - back into your RRSP. If you invest the monthly payments into a simple 30 day GIC at 4% - It's like making 12% compounded interest on your RRSP. This type of Mortgage can only be set up through a Self-Directed Plan such as with TDWaterhouse. There are legal fees (about $600) to discharge your current mortgage as well as CMHC Insurance on the new RRSP Mortgage.(minimal) + an annual plan fee of $200. But if you consider what you are saving on monthly interest payments to the Bank (ie:6% x $100,000 = $6,000/yr) You are way ahead. This concept works especially well when your mortgage is over $100,000 and you have 25 years before you will need your RRSP. Of course you "could" do better (or worse) in the Stock Market - but where can you earn 12% on a $100,000 investment without any risk. All Interest payments go to you rather than the Bank. The RRSP Mortgage is a well kept Secret. And now you know why.... |