REVscene Automotive Forum - View Single Post - You inherit a tidy sum of money. What do you invest in?

lowside67 · 11-19-2020, 11:20 AM

Your analysis doesn't really do the math correctly to fully compare the two options.

It is intuitive that if you choose to pay down your mortgage, the exact amount you save is: [amount you paid down] x [mortgage interest rate] x [X years you are analyzing].

If you take that same amount of money, and invest it in your TFSA, the amount you have after X years is:
[same amount] x [total return] x [X years].

If the total return on investment is higher than your mortgage rate, mathematically, the second calculation MUST be higher. Therefore, if in 5 years your mortgage is now 10%, you would be able to sell your TFSA, pay down the mortgage at that time, and you'd be further ahead because you'd have paid down more on that date than you would have saved by prepaying it up front.

-Mark

11-19-2020, 11:20 AM	#38
lowside67 Old School RS Join Date: May 2004 Location: Port Moody Posts: 4,641 Thanked 4,157 Times in 1,262 Posts Failed 130 Times in 80 Posts	Your analysis doesn't really do the math correctly to fully compare the two options. It is intuitive that if you choose to pay down your mortgage, the exact amount you save is: [amount you paid down] x [mortgage interest rate] x [X years you are analyzing]. If you take that same amount of money, and invest it in your TFSA, the amount you have after X years is: [same amount] x [total return] x [X years]. If the total return on investment is higher than your mortgage rate, mathematically, the second calculation MUST be higher. Therefore, if in 5 years your mortgage is now 10%, you would be able to sell your TFSA, pay down the mortgage at that time, and you'd be further ahead because you'd have paid down more on that date than you would have saved by prepaying it up front. -Mark __________________ I'm old now - boring street cars and sweet race cars.