As a financial planner, I agree with you that being mortgage-free is a great financial milestone to achieve. It’s very empowering and frees up a lot of money to be put towards other financial goals.
While mortgage debt is extremely important to address, when we look at it within the bigger financial picture of your household’s goals, we must also consider shorter-term goals that need to be addressed ahead of longer-term goals, such as early retirement or paying off your mortgage. Financial goal-setting is often fluid, and the financial choices that may seem “best” from a very narrow spreadsheet perspective may not always be the best for your family—and they may not provide the greatest peace of mind to both you and your spouse.
In this case, it may be important to set aside your motivation to pay down the mortgage in a very short few years and instead put this loan into context with other financial priorities in your household. Remember, you will still be making regular mortgage payments and reducing your principal during the next few years when your husband would like to focus on his son’s registered education savings plan (RESP) contributions—you just won’t be supercharging those mortgage payments.
Are RESPs worth it?
Caitlin, it’s often a good idea for couples to have a financial plan and to re-examine their short-, medium- and long-term goals on a regular basis. In your case, it appears that your husband would like to fast-track saving in an RESP for your stepson, who will be in college or university soon. It’s not out of the ordinary for couples to discover they have several financial goals to juggle over a few key years, as is the case for you here.
And while up to now paying down the mortgage fast was at the top of both your and your husband’s priority lists, there are often times when such a very ambitious goal has to be set aside temporarily so other key goals can be achieved to make both spouses feel that they are meeting financial commitments to loved ones.
This is likely the case with your husband’s new focus on his son’s RESP. Remember, there is only a very specific period of time in which the annual Canadian Education Savings Grant (CESG) of 20% can be claimed for a child. This 20% grant is free money from the government that you would not otherwise get from paying down your mortgage more aggressively. Your stepson may be reaching those grant cut-off years now. And your husband—knowing the importance of a good post-secondary education (as well as the often exorbitant expenses associated with it)—is moving this goal to the top of the list for a few years.
If that is the case, I suggest that if your husband has not made the maximum contribution of $2,500 a year for your stepson in order to receive the maximum CESG grant of $500 annually (to a lifetime limit of $7,200), then topping up the RESP to these limits could be wise. If the threshold has not been met, then this is a very sound financial priority for your family and one that would certainly be worth focusing on in the next four short years.
Remember, it makes sense to re-examine financial goals and always put these goals into perspective. Chances are very likely that your house will appreciate in value over the next few years, and this will be adding to your retirement nest egg—even if you hold off on a few years’ worth of bigger mortgage payments. On the other hand, student debt can hang over an individual for several years after a student has graduated. So, helping your stepson to start starts his career with as little debt as possible is an important factor in his success as a young adult—and that’s a goal well worth achieving for any parent.
