What to do with $70,000

Q – We have a 4.2% mortgage that will be up for renewal next January, with a principal balance at that time of about $23,000. Meanwhile, in August I will be receiving about $70,000 from a maturing insurance policy in Britain.
Our instinct is to bring the money to Canada, pay off the mortgage, and maximize our RRSP contributions for 2002, leaving us with an additional $30,000 to invest towards retirement. How do you suggest we invest the $30,000 (I’m 49, hope to retire at 60, and already have about $200,000 in RRSPs).
Or is there a better way to use the whole $70,000? – L.D.

A – Although the interest rate on your mortgage is low right now, the probability is that it will be higher when it comes up for renewal in January because of rising interest rates. Since mortgage interest is not tax deductible, the full cost is an out-of-pocket expense for you. Let’s assume it renews at 5%. The question you have to ask is whether you can invest the money anywhere else, safely, and receive a 5% after-tax return. The answer is probably “no”, which makes paying off the mortgage a good option unless you e carrying higher-interest debt that should take priority (e.g. a credit card balance).

Maxxing the 2002 RRSP contributions is a good idea. With the remaining $30,000, why not put enough aside so that you can make your 2003 contributions in January? That will get the money working in a tax sheltered plan right away.

If there is anything left after all this, you should discuss the options with your financial advisor in the context of your other assets and your goals. – G.P.