Pete has a low fixed-rate mortgage, and although he pays the required bi-weekly payments, he is able to pay an annual lump sum with no fees attached. He can get the money by selling his mutual fund, but he is questioning if this is a good idea. After evaluating the positives and negatives, the answer is no, because the interest rate in the mutual fund is higher than the mortgage interest rate. Another reason not to do this is that there could also be hidden fees and tax consequences (if held within an RRSP) of selling a mutual fund.

Key Takeaways:

• Withdrawing from investments to pay off your mortgage could have hidden fees associated with it, and is generally not a good idea.
• Increasing your payments on the mortgage if you have surplus cash could be helpful for the future.
• If you increase payments on your mortgage, make sure to choose an amount that will not cause you financial hardships in the future.

“People want to know where their money will be most effective. [But] selling high returns for low-rate debt doesn’t add up.”

Read more: http://www.moneysense.ca/columns/ask-moneysense/should-pete-sell-his-mutual-funds-to-pay-down-the-mortgage/