Maria has a mortgage of $300,000 at 3% interest, a HELOC of $50,000 at 7% interest, and a student loan of $20,000 at 5% interest. She expects a bonus of $10,000. According to the FP Canada Professional Competency Profile, what is the most financially prudent use of this bonus to reduce her interest burden, assuming all debts are non-deductible for tax purposes?

Question: Maria has a mortgage of $300,000 at 3% interest, a HELOC of $50,000 at 7% interest, and a student loan of $20,000 at 5% interest. She expects a bonus of $10,000. According to the FP Canada Professional Competency Profile, what is the most financially prudent use of this bonus to reduce her interest burden, assuming all debts are non-deductible for tax purposes?

Answer options:

• Pay down the mortgage because it's the largest debt.
• Invest the bonus in her RRSP for tax deferral. ✅ Pay down the HELOC due to its highest interest rate.
• Pay down the student loan as it has the lowest balance.

Correct answer: Pay down the HELOC due to its highest interest rate.

Explanation: To minimize interest burden, the most financially prudent choice is to pay down the debt with the highest interest rate. The HELOC at 7% has the highest interest rate among Maria's debts, thus reducing its principal will save the most in interest costs.