Mortgage principal is not tax-deductible, so if you’re making a significant payment towards the principal, double-check what your tax liabilities will be in that year. Make sure you will have enough cash left to pay the taxes.

Of course, if you’re paying down the mortgage out of savings, you don’t have to worry about that. That’s how it works in Canada – you don’t pay taxes on capital gain when you sell your residence, but the money you pay for the house is taxed in advance, so you’re always paying down the principal with your after-tax dollars.

For those of you who just went, “Pffft, this is common knowledge”, sorry to bore you, but to those people out there who like me had no clue – just take note.

We made our downpayment out of then-current year’s income, and were hit pretty hard with a $11,000 tax bill the next spring. When we were buying the condo, I was 100% confident that the downpayment was a tax-writeoff! Not so, and imagine what a surprise it was. I felt pretty dumb, but then realized why I made the mistake. I lived in the States for a few years, and assumed that Canada was just like the US in financial aspects. It’s simply not true, Canada’s policies are very different in many ways. I’m still learning!