Pay Off Mortgage vs Invest Canada 2025

Mortgage vs Investing Calculator

Enter your mortgage details and investment assumptions to compare outcomes over your time horizon.

Remaining Mortgage Balance ($)

Mortgage Interest Rate (%)

Years Remaining on Mortgage

Extra Monthly Amount to Allocate ($)

Expected Annual Investment Return (%)

Marginal Tax Rate (%)

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The Core Decision: Pay Off Mortgage Early or Invest?

This is one of the most common dilemmas for Canadian homeowners who have extra cash flow. You have a mortgage at, say, 5% interest. The stock market has historically returned about 7 to 10% annually. So mathematically, investing wins — right?

Not always. The decision depends on several Canadian-specific factors:

Guaranteed vs expected return: Your mortgage rate is a guaranteed return (by paying it down). Investment returns are not guaranteed.
RRSP and TFSA room: If you have unused registered account room, investing inside these accounts shelters returns from tax — improving the case for investing.
Mortgage rate vs investment return spread: When your mortgage rate is 6% and expected returns are 7%, the gap is small and risk-adjusted returns may favour the mortgage.
Risk tolerance and psychology: Being debt-free has real value in terms of peace of mind, financial security, and reduced stress.
Job security: If your income is variable, paying down the mortgage reduces the risk of default during income disruptions.

The Canadian Math: Tax and Registered Accounts

Canada's TFSA and RRSP change the calculation significantly:

TFSA investing: Investment returns inside a TFSA are completely tax-free. A 7% return inside a TFSA is a 7% after-tax return — directly comparable to a 5% guaranteed mortgage rate without any tax adjustment needed.

RRSP investing: RRSP contributions generate immediate tax refunds. A $100 RRSP contribution at a 40% marginal rate saves $4,000 in taxes today. Reinvesting that refund supercharges the compounding effect.

Non-registered investing: Returns are taxed annually (interest) or at disposition (capital gains at 50% inclusion rate, eligible dividends with dividend tax credit). This reduces the effective return and weakens the case for investing over mortgage paydown.

Recommendation for most Canadians: maximize TFSA first (tax-free), then consider RRSP if in a high marginal bracket, and only then consider non-registered investing vs extra mortgage payments.

Current Canadian Mortgage Rates (2025)

5-year fixed insured: approximately 4.49 to 4.99%
5-year fixed uninsured: approximately 4.79 to 5.29%
Variable rate (prime - 0.75%): approximately 5.45% as of March 2025
HELOC: prime + 0.5 to 1% = approximately 6 to 6.5%

At a 5% mortgage rate, you need to earn more than 5% after tax on investments for investing to make financial sense. Inside a TFSA with a 7% expected return, investing likely wins. In a non-registered account with a 40% marginal rate, the after-tax return is only about 4.2% — below the mortgage rate.

The Split Strategy

Many Canadian financial planners recommend a balanced approach:

Always make TFSA contributions before extra mortgage payments — tax-free growth is too valuable to pass up
Consider RRSP contributions if in a 40%+ marginal tax bracket — the immediate refund and compounding are powerful
Apply any remaining extra cash to your mortgage as lump-sum prepayments (most Canadian mortgages allow 10 to 20% annually)
Rebalance the allocation as your mortgage rate renews — if you renew at 6%, the mortgage case gets stronger