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Enter your mortgage and a monthly amount to allocate. See the net worth of extra mortgage payments versus investing the same money in a TFSA, RRSP or taxable account — which wins, by how much, and your personal break-even return.
8 min readUpdated 6 Sep 2026Canada (CAD)
Your details
$
%
yrs
Rate is assumed constant; Canadian mortgages renew ~every 5 yrs
$/ mo
Extra payment, or invested — after any RRSP match
%
Global index funds: ~7-9% historically
TFSA — tax-free growth and withdrawals
Effective tax on gains = inclusion rate × marginal rate
Results
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Enter your details to compare investing vs paying down your mortgage.
Enter your mortgage, a monthly amount to allocate and your expected return, then choose your account type to see which strategy wins and your personal break-even return.
Net worth over time
Comparing both strategies to end of amortization
Invest
Pay down mortgage
Key takeaways
Capture your full employer/group RRSP match first. A 50-100% instant return beats both extra payments and taxable investing.
Paying down is a guaranteed return equal to your mortgage rate. There is no mortgage interest deduction in Canada, so the rate is the full benefit.
The break-even return is the deciding number. Beat it and investing wins; fall short and paying down wins.
A TFSA tilts it toward investing. Tax-free growth pushes the break-even close to your mortgage rate; a taxable account raises it.
Your rate resets at renewal. This tool assumes a constant rate — re-run it each time your term renews.
Prepay your mortgage or invest? A Canadian guide to the decision
By CalculatorDashboard Editorial Team·Updated ·Reviewed ·6 min read
Should you pay down your mortgage or invest in Canada?
It comes down to your numbers: extra mortgage payments earn a guaranteed return equal to your mortgage rate, while investing offers higher but uncertain returns. Every dollar you put toward the balance saves you that rate in interest for every remaining year of the amortization — with no uncertainty about what you'll save. And because mortgage interest on your home is not tax-deductible in Canada, that guaranteed saving is the full rate, not an after-tax version of it.
Worked example: the calculator's default is a $400,000 mortgage at 4.8% with $500 a month to allocate, invested at 7% in a TFSA over 25 years. Because the horizon is long and the TFSA is tax-free, investing typically comes out ahead, and the break-even return sits close to the mortgage rate. Switch to a taxable account and the break-even climbs, because part of your gain is taxed at your marginal rate.
Historically a globally diversified equity index fund has returned roughly 7-9% a year in nominal terms over long periods, above most Canadian mortgage rates. But those returns come with volatility, and Canadian mortgages carry an extra wrinkle: your rate is usually fixed only for a term of around five years, then renews at prevailing rates.
Before either choice, one move beats both: capture your full employer or group RRSP match. A match is an instant 50-100% return that no mortgage rate can beat. Only direct spare cash to extra payments or a taxable account after the match is maxed.
This calculator runs both scenarios month by month to the end of your amortization and compares net worth at that point, and solves for the exact break-even return. Enter your details to see the numbers for your situation.
Guaranteed return vs expected return
When you pay down your mortgage, you earn a guaranteed, risk-free return equal to your mortgage rate. On a 4.8% mortgage, every dollar of extra payment saves 4.8 cents a year in interest until the loan is cleared — and with no mortgage interest deduction in Canada, none of that saving is clawed back by tax.
When you invest instead, you trade that certainty for the potential of higher returns. A diversified equity index fund has historically returned about 7-9% a year over long periods — but with real volatility along the way.
The break-even rate is the investment return at which both strategies produce identical net worth at the end of your amortization. If you can confidently earn more than the break-even rate, invest. If not, pay down.
Inside a TFSA (no tax on growth), the break-even is close to your mortgage rate. In a taxable account, capital gains tax raises the break-even — you need a higher gross return to end up with the same after-tax result.
How Canadian taxes change the decision
TFSA. Growth and withdrawals are entirely tax-free — the cleanest comparison against a paid-off mortgage. This is usually the most competitive home for the "invest" side.
RRSP. Tax-deferred: you get a refund when you contribute, but withdrawals are taxed as income. It works best when your tax rate in retirement is lower than today. This tool models the RRSP as tax-free growth for the comparison; remember withdrawals will be taxed, which trims the edge slightly. A group or employer RRSP match, where available, should always be captured first.
Taxable (non-registered). Only part of a capital gain is included in income — the CRA inclusion rate — and that portion is taxed at your marginal rate. So the effective tax on gains is inclusion rate × marginal rate. Historically the inclusion rate has been 50%.
Verify the capital gains inclusion rate. A proposed increase to 66.67% on gains above $250,000 was announced in Budget 2024, then cancelled in March 2025 — so 50% remains in force. Confirm the current CRA rule, plus TFSA and RRSP contribution room, before acting. This is educational information, not tax or investment advice.
The 5-year renewal wrinkle
Unlike the US 30-year fixed mortgage, most Canadian mortgages are amortized over 25-30 years but only have their rate fixed for a term of around five years. At each renewal your rate resets to whatever prevails. This calculator assumes a single constant rate to the end of your amortization, so treat long-horizon results as a guide and re-run the numbers at each renewal with your new rate. If you expect rates to rise, the guaranteed saving from paying down becomes relatively more attractive.
When does paying down the mortgage win?
High mortgage rate. A high rate is a high, guaranteed hurdle for uncertain returns to beat.
Short remaining amortization. Less time for compounding to overcome clearing the loan early.
Taxable account. Capital gains tax raises your effective break-even rate.
Near or in retirement. A guaranteed, debt-free retirement can be worth more than uncertain extra returns.
Peace of mind. Some people simply sleep better without a mortgage.
When does investing win?
Long horizon. With 15-25 years, compound growth has time to outpace the mortgage rate.
TFSA available. Tax-free growth lowers the break-even.
Low mortgage rate. A low rate is easy to beat with diversified equities.
Employer/group RRSP match. Always take the free match first.
Young investor. Time in the market is the biggest driver of long-term wealth.
How do the outcomes compare across scenarios?
The winner flips with your rate, account type and horizon — here's how five common Canadian setups play out at a 7% expected return:
Scenario
Mortgage rate
Inv. return
Account
Winner
Low rate, TFSA
3.5%
7%
TFSA
Invest
Mid rate, TFSA
4.8%
7%
TFSA
Invest
Mid rate, taxable
4.8%
7%
Taxable
Close
High rate, short term
6.5%
7%
Taxable
Pay down
High rate, TFSA
6.0%
8%
TFSA
Invest (marginal)
Should you do both — a blended approach?
Yes — you don't have to choose one strategy completely. Many people split spare cash, say 60% to a TFSA and 40% to extra mortgage payments. This hedges both ways: if markets have a bad decade you've still cut your debt, and if they do well your portfolio grows. It's a reasonable default when the mortgage rate and expected return are close.
How Canadian rules change the comparison
Canadian mortgages work differently from those in the UK and US. Most are amortized over 25 years but renewed in shorter terms, commonly five years, so your rate can change at each renewal. Lenders usually allow prepayments up to a set limit each year, often 10% to 20% of the original balance, with penalties above that. And interest on a home mortgage isn't tax-deductible for most Canadians.
On the investing side, a TFSA grows tax-free and withdrawals are tax-free, while RRSP contributions are deducted from taxable income now and taxed when withdrawn.
A worked example: C$10,000 and an RRSP refund
Sam has C$10,000, a mortgage at 4.5%, and a marginal tax rate of 30%. Prepaying earns a guaranteed 4.5%. Over 15 years that's worth about C$19,350. Contributing to an RRSP instead produces a C$3,000 tax refund now. If the C$10,000 grows at 6% a year, it reaches about C$23,970, or about C$16,780 after 30% tax on withdrawal. If Sam also uses the C$3,000 refund to prepay the mortgage, that adds about C$5,810, for a combined C$22,590. The refund is what makes the RRSP compelling for someone whose tax rate will be lower in retirement.
This is general information, not personal financial advice. Your tax rate now and in retirement, your renewal date and your prepayment limits all change the answer.
Common questions
Invest or Pay Down Mortgage FAQs (Canada)
Compare the guaranteed return from paying down (your mortgage rate) against your expected after-tax return. Historically equity index funds have returned about 7-9% a year, beating most Canadian rates — but investing carries risk while paying down is guaranteed. A TFSA makes investing most competitive; capture any employer/group RRSP match first.
The break-even return is the investment rate at which both strategies produce the same net worth at the end of your amortization. Inside a TFSA it's close to your mortgage rate. In a taxable account, capital gains tax (inclusion rate × marginal rate) raises the break-even.
In a taxable account, only part of a gain — the CRA inclusion rate, historically 50% — is included in income and taxed at your marginal rate. A proposed rise to 66.67% on gains above $250,000 (Budget 2024) was cancelled in March 2025, so 50% remains in force. Gains inside a TFSA or RRSP are not taxed as capital gains.
A TFSA grows and is withdrawn tax-free — the cleanest comparison against a paid-off mortgage. An RRSP is tax-deferred: a refund now, taxed on withdrawal, best if your retirement tax rate is lower than today. This tool models both as tax-free growth; for RRSP money, remember withdrawals are taxed.
No — interest on your primary residence is not deductible in Canada, unlike the US. (The Smith Manoeuvre can make borrowing-to-invest interest deductible, but that's a separate, higher-risk strategy not modeled here.) So the guaranteed return from paying down is simply your mortgage rate.
Yes. Canadian mortgages amortize over 25-30 years but the rate is usually fixed only for ~5 years, then renews. This tool assumes a constant rate to term end, so treat long-horizon results as a guide and re-run at each renewal with your new rate.
Yes — a split hedges both ways. Putting, say, 60% into a TFSA and 40% toward extra payments builds wealth through compounding while cutting debt. It's a reasonable default when the mortgage rate and expected return are close.
This calculator is for illustrative and educational purposes only and does not constitute tax, investment or financial advice. Investment returns are not guaranteed and your capital is at risk. Tax rules (the CRA capital gains inclusion rate, TFSA and RRSP contribution limits) change — verify current-year figures for your situation. Always consult a qualified tax or financial professional before making investment or mortgage decisions.