One of the biggest debates around the Canadian personal finance world is battle between contributing to your RRSP or using the money to pay down your mortgage? The answer is, as always, it depends.

Ok, so lets go through your options.

1. Pay down your mortgage first, then start contributing to your RRSP.

  • There is no doubt that paying off your mortgage will give a guaranteed tax free return.
  • The problem with this is that you’ll miss out on YEARS of tax free compounding within your RRSP. Returns that will potentially (most likely) beat your mortgage rate (today’s low rates that is).
  • This option may be best for people who are in the lower tax brackets.

2. Keep making the regular mortgage payments, but maximize your RRSP.

  • Providing that you are in a high tax bracket, I don’t think that you can go wrong with this option.
  • This option may not be desirable for someone who has more years left on their mortgage than they do have left until retirement. The goal should be to retire debt free.

3. Do BOTH. Maximize your RRSP and use the tax refund to pay down your mortgage.

  • This is the optimal solution in my opinion.
  • Contribute as much as you can to your RRSP and use your tax return to pay down the mortgage. That way, you get the best of both worlds, a tax free fixed income return (mortgage), along with growth (RRSP).

I’m sure most of you know about this trick already, but make sure that you are paying your mortgage off BI-WEEKLY instead of monthly. Paying bi-weekly will seem like your making the same payments as monthly, EXCEPT, you’ll end up making an extra payment (monthly) in a year. This simple tweak of paying your mortgage bi-weekly will reduce your amortization from 25 years to 21 years.

Here is a nifty RRSP vs Mortgage calculator that determines if you’d come out ahead paying down your mortgage or investing in your RRSP.


  1. Canadian Dream on April 4, 2007 at 11:25 am

    What did everyone write on this one this week? I have to admit I like to see other people take on the idea.

    Thanks and keep up the good work!

  2. FrugalTrader on April 4, 2007 at 11:29 am

    C Dream, LOL, funny isn’t it? I had this in my post que for almost a week now, and it’s surreal how many bloggers are posting on the topic around the same time. I guess great minds think alike? ;)

  3. Middle Class Millionaire on April 4, 2007 at 12:14 pm

    ha ha ha. I had one ready to go also…maybe I’ll save it for the summer…Cheers.

  4. Canadian Capitalist on April 4, 2007 at 3:23 pm

    CD: You should allow us to comment on your blog without having to register.

    FT: I am starting to lean towards the idea that paying down the mortgage is superior unless you are willing to construct a properly diversified, low-cost, portfolio. The reason? According to many studies, most investors earn nowhere near market returns. If investors behave in the future as they have in the past (no reason to believe they won’t), a 5% after-tax return sounds darned good.

  5. FrugalTrader on April 4, 2007 at 3:33 pm

    CC: Paying down the mortgage is definitely a safer bet as it is a guaranteed after tax return on your money. Although, choosing between the RRSP and Mortgage, really depends on the ability of the investor. If the investor can sit through rough times and keep their eye on the big picture, the the market will certainly outperform the low interest rate environment like today, especially if the funds are in a tax free account. But again, that is just my opinion.

  6. Canadian Dream on April 4, 2007 at 4:05 pm


    I removed the anonymous comments do to spam issues. The side effect of that is with the Blogger platform is you have to register to leave a comment.

    My thoughts were most people use one of Google’s services so that can use that ID to sign into Blogger. Hence creating a account should not be a problem and doesn’t even require the person to learn a new ID or password beyond the first Google account.

    My only other option to control the spam is to moderate ALL comments, which would result in serious delays between submitting a comment and getting it posted.

    So in the end I picked the lesser of two evils in my mind.

    Please email me if you would like to discuss more.


    PS- FT, sorry for this comment being completely off topic, but I felt I should address CC’s question where he asked it.

  7. Mike on April 4, 2007 at 4:43 pm

    I see nothing wrong with trying to split your money between paying down the mortgage & doing rsp contributions in whatever ratio suits you.

    As CC mentioned the risk/reward profile is very tempting for mortgage paydown ie just over 5% guaranteed at the moment. On the other hand if you are a high-tax person then it’s harder to pay down the mortgage if you are paying 45% of it out in taxes whereas 100% of the gross pay can go into the rrsp.

    CD: I don’t have a google account and I wanted to share my brilliant thoughts a few times on your blog but I couldn’t (and now I can’t remember the thoughts so they probably weren’t that brilliant).

  8. Mike on April 4, 2007 at 4:47 pm

    One other point to mention:

    FT: I agree with you that over the long term (ie over the life of a 25 yr mortgage) a disciplined low cost passive investor should get a better return than the current mortgage rates (~5%) however there is the possibility that the interest rates could go up which would change the equation. Also – when I think of long term expected returns I might pick a number like say 7% for equities. If the time frame is 20+ years then I might have some confidence that my estimate might have a reasonable chance of being somewhat accurate. But if you’re comparing equity returns to a mortgage – what if your mortgage only has 10 years to go? Can I still say with the same certainty that my estimated equity return will be 7%?

    I would say for shorter time periods (let’s say less than 10 years) you really can’t estimate the equity return at all because it’s too volatile over shorter time periods.
    Anyways, I think the point I’m attempting to get at is that the shorter the mortgage term, the argument that equity returns will outperform the mortgage rate becomes less relevant.

  9. Everyday Weekender on April 5, 2007 at 12:21 am

    very good post.. I think its important to first pay off the mortgage.. so its good that there is a different perspective.

  10. Jerry on April 5, 2007 at 1:09 am

    New to MDJ (from RFD), but personally (without really comparing mortgage vs RRSP or any type of investment), I’d pay off mortgage first
    It is, after all, reducing debt, and guaranteed X%
    And for lots of people, debt reduction or debt-free is a great accomplishment and awesome feeling

  11. Chris B. on April 5, 2007 at 9:36 am

    I love this debate, and I have something to add to the equation. I normally believe that adding money to a retirement account is more advantageous than paying down a mortgage, but in my case, I’m not sure. My wife and I do not have 20% equity in our house yet, so we have to pay about $62 per month for PMI. I wonder if I should pay down my mortgage until I have 20% equity instead of put more money toward retirement. Any thoughts?

  12. Q Cash on April 5, 2007 at 7:58 pm

    Being debt free is a huge relief, and it makes decisions regarding when to take retirement incredibly easy.

    I, however, always maxed out my RRSPs and used the tax reduction for debt retirement (most times, there were occasions when the refund went to things it probably shouldn’t have ;-)

    The key is discipline.

    On my first mortgage, I did the bi-weekly payments and increased the amount by 10% each year. I felt the 10% increases where within my comfort zone and I was generally making more each year (not always 10% by any stretch, but as I learned to do without the money, I was better able to budget).

    I always treated the mortgage as the cost of living and budgeted accordingly. I did what I could to pay it off, but I also invested in my RRSP.

    It was great to pay off the mortgage AND have a nice retirement portfolio as well.


  13. Ed Rempel on April 11, 2007 at 10:26 pm

    Hi All,

    I’ve run many scenarios of RRSP vs mortgage over the years and have found the main determining factor is a huge surprise.

    The top 3 factors in RRSP vs mortgage are:

    1. How much of the mortgage payment will be invested once the mortgage is paid off?
    2. Investment return vs. mortgage rate.
    3. Tax considerations – tax-efficiency of investments and what you do with the RRSP tax refund.

    Just ask yourself – once the mortgage is paid off, how much of the mortgage payment will I invest? If your answer is less than 90%, then RRSP is definitely preferable. Most scenarios require 100% of the mortgage payment to be invested before the mortgage strategy can compete with RRSP.

    We have found that most people that prefer the RRSP are investors, while most that prefer the mortgage are really anti-debt people. We call this the “Sacred Cow”, which is very common in Canada. The belief is that we should pay off the mortgage and then we can spend much of the money and live a comfortable life without debt.

    I often hear people telling me they can retire on almost nothing, since they will have no debt and they won’t be spending much money after they retire. We call this the “Zero Plan” for retirement.

    However, when we go through the cash flow in detail and plan specifically what income they will need to have the retirement they want, their delusions are laid bare.

    If you believe in the mortgage pay-down, ask yourself if you are really just anti-debt – and whether or not you will invest 100% of the mortgage payment once the mortgage is paid off.

    The 2nd most important criteria is the investment return vs the mortgage rate. Considering that mortgage rates are around 5% and should stay low for nearly all of the next few decades (demographic reasons), it is not that hard to beat 5% after tax long term.

    If you don’t know how to do this, email me.

    Canadian Capitalist is right that the average investor makes returns far below average. In fact, the Dalbar study showed over 20 years, the average investor made only 3.5% while the investments they owned made 11%. How can this be? The human brain is conditioned to consistently market time badly. Read some behavioural finance and you’ll find it is hillarious.

    In short, if part of your criteria for buying an investment is that it is currently “doing well”, you will almost definitely earn below average returns.

    However, if you study investment philosophy and hire the world’s best investment managers to work for you – and don’t market time – then beating 5% after tax in the long run is a piece of cake.

    The long run return of the markets is quite consistently 7% over inflation, based on “Stocks for the Long Run” (first book). There are fund managers that beat the markets over long periods of time – and can tell you why. Invest with a few of them and you’ll be fine.

    By the way, a far better strategy is the Smith Manoeuvre. With the SM, you always do both at the same time – pay down the mortgage AND invest. Plus, since the SM requires none of your cash flow, you can still use your extra cash to either pay down the mortgage more – AND invest more, or invest in RRSP’s.

    Paying down the mortgage AND investing is better than just paying down the mortgage OR investing, isn’t it?


  14. […] It’s a never-ending debate: invest in your RRSP or pay down the mortgage. Here are two recent posts on the subject from Million Dollar Journey and Canadian Dream. […]

  15. Nhi on April 14, 2007 at 12:01 am

    I like the calculator you provided, but it seems no matter what set of numbers I use, the result always tells me to contribute to my RRSP vs. paying down the mortgage, even if I claim a 15% marginal tax rate.

    Could this be influenced by the fact that Empire Life offers RRSP products and not mortgages?

  16. Ed Rempel on April 14, 2007 at 4:04 pm

    There is a never-ending debate, but the main factor determining which is better is almost always – how much of the mortgage payment will be invested once the mortgage is paid off?

    This is the main factor and is almost always left off of comparisons. For this reason, projections can prefer one or the other, but in practice, the people that pay down the mortgage almost always end up spending most of their mortgage payment once the mortgage is paid off, and end up with very few investments when the retire. This means they get used to a nice lifestyle after the mortgage is paid off, but then have to cut back severely when they retire.

    Here is my observation from working with thousands of clients and prospects. Very wealthy people tend to have high debts. Hardly anyone becomes wealthy without leverage. We find that only the poor and middle class are debt free.

    In the U.S., mortgages are tax deductible, so many people don’t even try to pay it off. 90% of the millionaires in the U.S. have a mortgage – and why not when it is a low rate and fully tax deductible. So, from when they are young, they focus on net worth – not on debt.

    We believe this difference is far more profound than you might think. We think this is the main reason why 1 in 13 Americans are millionaires. It’s true and shockingly high – isn’t it?

    In practice, people we meet that focused on their RRSP’s are almost always way ahead of those that focussed on the mortgage.

    The answer is:
    1. Make your mortgage amortization the same as the time till you retire (so you don’t get used to spending the money in between).
    2. Max your RRSP’s
    3. As FT says, do both by paying your RRSP tax refunds on the mortgage.
    4. Do the Smith Manoeuvre. It easily beats both the mortgage or RRSP strategy.


  17. […] My fellow pfbloggers, Blueprint for Financial Prosperity and Million Dollar Journey, recommend that a person do a little of both: pay down the mortgage some and invest some. Free Money Finance says: “If you have the discipline to save/invest the money you would be using to pay off the mortgage, it’s likely that saving/investing is the better option. But if you’re more the “average” person out there managing your money, I still believe it’s a better option to pre-pay your mortgage.” […]

  18. […] April FrugalTrader05:00 am12 Comments Ed Rempel has an interesting point of view on the debate: RRSP vs. Mortgage. I thought that many of his points were valid and should be shared with you. […]

  19. […] RRSP vs. Mortgage […]

  20. Man From Atlantis on August 5, 2007 at 1:37 pm

    In my view it is best to pay down the mortgage and then leverage that principal payment back into an investment. Don’t make any RRSP contributions while you have debt that is not tax deductible. Your RRSP room will grow and when/if you sell off your leveraged investment you can deposit some to the RRSP – keep deferring tax. If you are not comfortable leveraging then do the RRSP and mortgage.

  21. nobleea on January 11, 2008 at 1:50 pm

    There’s a really good online calculator at taxtips:

    It might help make the decision easier.

  22. DAvid on April 7, 2008 at 11:39 pm

    The debate continues at, where Duncan Hood claims the Mortgage, especially in the early years is the best investment. Once you have reasonably reduced your mortgage, then catch up on your RRSP, rather than buying a bigger house. You can read the article here:


    • FrugalTrader on April 7, 2008 at 11:45 pm

      DAvid, yes the biggest problem with paying down the mortgage first is the tendency for people to upgrade their housing.

  23. Kris B on April 14, 2008 at 2:09 pm

    I’ve read alot of comments on here about the RRSP vs Mortgage debate, I’ve run alot of the calculators out there and I agree that normally (if there is such a thing) most people would be better off investing while they pay their mortgage instead of waiting till the debt is gone.

    Now with that out of the way it seems to me there are a few choices on how to invest that have the benefit of paying down the mortgage as well:

    1) RRSP- Contribute any left over money after min mortgage payment and use tax savings on mortgage principal at end year.

    2) Smith Man- Take equity out of mortgage and invest (not-registered), used the interest paid on that investment load as a tax deduction, then put that money also on that mortgage (continue cycle after that)

    I wonder, and have not seen anyone on this website or others mention possible combinations of these ideas?? I am not a financial expert, and perhaps this idea is not possible for legal or other reasons but could you not combine the above two ideas?


    1) Have a readvancable mortgage- Take your equity out as you pay your mortgage (max payment you can afford like in SM), and invest this equity in an RRSP. Recieve tax refund end year, put that on mortgage, then withdraw equity again and continue the process.

    Now I realize that in this scenario that you would not recieve the interest deduction that you would recieve for a non-registered investment, but instead would recieve the normal return that an RRSP would recieve. As far as I can figure the effect would be recieving a large tax refund in the present (by using RRSP) and smaller in the future, vice a normal SM where you recieve a very small refund at first and larger in the future (on a continual basis I realize until the loan is paid).

    Any comments on this hybrid RRSP- SM idea, I am certain others have considered this option before and knew reasons why it is either worse or not legal than the regular SM, but I’d like to know those reasons. Plse advise.

    • FrugalTrader on April 14, 2008 at 2:37 pm

      Kris, as you mentioned, there are a couple issues with this. Lets look at the big picture.

      At the end of 25 years, when the mortgage is paid off, you’ll end up with a large HELOC which is non-ded, along with a large RRSP. If you want to withdraw from your RRSP, you’d have to pay tax at your full marginal rate.

      If you do the regular SM, at 25 yrs, you’ll have a large heloc which is tax deductible, but also a large portfolio which pays you tax efficient dividends.

      I haven’t run through the exact numbers, but it looks like option 2 is more favorable.

  24. Kris B on April 14, 2008 at 3:15 pm

    Thanks for the quick reply, yes on the surface the regular SM does seem to me to be more advantageous as well, two thoughts in the back of my mind make me wonder though:

    1) Legality of SM: risk that standard SM deduction for non-reg investment interest might be overturned by supreme court. Now I realize this hasn’t happened, and might not. And even if it does you’ll still be able to do it until that ruling comes down, but it is a risk to consider.

    Compared to that, the deductability of RRSP investments is not going anywhere anytime soon, as this is the prime vehicle government supports for retirement. Just a thought, if the interest deductability for regular SM goes away, a powerful tool within it’s arsenal is as well.

    2) Benefits of tax deduction in present current dollars (with compounding) vice future dollars.

    From the calculators I’ve used for an average home mortgage of $185K at prime, and funds above interest of $5-600 a month, that interest would start around 2-3$ per month, rising to 24$ in the first year. As you put $600 on the LOC each month. Over the longer term (5 years) interest payments steadily rise to about $187-200. This shows to me that in the first 5 years of a SM that interest deductions would return only a small amount in the first few years (<5) $70-$400 and rise to be a considerable deduction by the end of the mortgage (15 years) at around 2-3K depending on rates.

    If you used an RRSP for the SM you could average high returns in the first year the same investment ($600 per month), why, well it seems to me because you are recieving the deduction (based on your tax rate) on the amount invested not just on it’s interest. Now I realize this is a one shot deal, once you get this return for a year, you won’t get a return on that amount next year, but you will however recieve an identical return on the new amount you put in your RRSP that year.

    To make it short: recieve a large return (based on investment amount not interest) today and use that to pay mortgage down and re-invest. Or recieve a smaller return that grows each year as interest grows, and use that to pay the mortgage down and re-invest (at an increasing rate, as I’m aware)

    I wonder if someone crunched the numbers on an RRSP-Smith Man if the savings from the RRSP used against the mortgage would retire that loan (on the house only I realize, a large non-deduc loan would still exist) quicker than a regular SM? If so would these increases in compounding, make up for the loss of interest deductability for a investment loan (over the long-term i.e. 25 years?)

    These calculations seem quite complex, do you have a spreadsheet you would recommend for this, or would it require a novel review of this situation. To be clear though, I do suspect that you are right that a regular SM will out perform, but I would like to see a comparision. Maybe if someone has done one already.

  25. threethings on September 2, 2008 at 2:52 pm

    This forum/post seems closest, but I have been looking for a while, but have not found a good answer to:

    Is it better for a person (35 years) to take money out of his RRSP (which has $60,000 in it) to put a downpayment on his first house even if he already has enough downpayment to get a regular mortgage?

    On one hand I see that $20000 can grow in the RRSP at untaxed at a rate slightly greater than the mortgage interest. But on the other hand this money will not be touchable for another 30 years, at which point the difference in the interst earned on 20,000 to mortgage paid on it will be small compared to the person’s net RRSP.

    Feel free to ask for more details if it helps the answers.

  26. houseproud on September 4, 2008 at 6:54 pm

    My own home is mortgage free (yeah, it really is a great feeling) and I work from it on a freelance basis and do not pay at a high tax rate. My question, to anyone who wants to weigh in is:

    On a second, investment rental home, should I pay that mortgage down or pay into my RRSP? Is there a difference in that it isn’t my prinicpal?

    I’m only into it 1.5 years, and is breaking even on an exense/income level since the interest is half of the mortgage at this point. This house is about 50% of my pension at this point. My mortgage interest rate and interest rate on investments is almost equal.

  27. Madusha on January 29, 2009 at 4:43 pm

    I am planning to buy a house sometime in April/May and looking to open an RRSP, so I can get a big tax refund as well as use my RRSP contribution towards a big down payment (this is going to be my first home). I am still not sure where to or what sort of a RRSP is good for me. I was also wondering whether it is possible to contribute money in to the RRSP for my previous years (the years I didn’t put money in since i didn’t have a RRSP). Any advice would be greatly appreciated…


  28. DK on January 29, 2009 at 6:09 pm


    Keep in mind the money has to be in an RRSP for at least 90 days before you buy your home in order for you to withdraw it tax free. If you’re planning to buy in April you may be out of time.

    If you’ll meet the 90 day requirement, check your 2007 Notice of Assessment for your available RRSP contribution room. As far options go, you can open an RRSP account at any financial institution. I’ve found ING has a very competitive interest rate with a 90-day RRSP GIC being offered at 3.5% p.a.

  29. DK on January 29, 2009 at 7:24 pm


    The answer to your question is: it depends what rate of return you expect to make on your RRSP investments versus the interest rate you are paying on your mortgage. Keeping in mind the requirement to pay back 1/15th of the withdrawn amount every year for 15 years, I have crunched some numbers for you.

    If you assume an 8% rate of return in your RRSP, withdrawing $20,000 and paying back $20,000/15 every year ends up costing you about $86,000 over a 30 year period. If the rate of return is 3.75%, the cost to you is about $14,000.

    Now let’s look at your mortgage. If the average mortgage rate over 30 years is only 4.5%, the additional down payment would save you about $16,000 of interest. At 6% you save about $22,000.

    So it really depends, but as you can see unless you don’t expect to earn much in your RRSP, you are far better off leaving your $20,000 there.

    As an aside, note that at an 8% rate of return for the RRSP, the rate on your mortgage would have to be about 18% before you break even!

  30. nobleea on January 29, 2009 at 7:56 pm


    For a fair comparison, you’d need to include the impact of the CMHC premiums. If, for example, the extra RRSP HBP withdrawal meant no premiums were necessary, then the CMHC premiums and interest on those premiums need to be included. Since the premiums are based on a percentage of the mortgage value, this could be a significant amount.

    I don’t think it’s fair to assume a 4.5% mortgage rate over 30 years. The long term average is somewhere between 6 and 7 % I think.

  31. DK on January 29, 2009 at 8:02 pm


    threethings wrote that he had already enough down payment for a regular mortgage so I assumed that meant he wouldn’t need CMHC regardless.

    Even at 7% the interest saved is only $28,000

  32. 2invest on February 21, 2009 at 12:22 pm

    Here is a really comprehensive calculator. Enjoy.
    Of course anybody that didn’t get to invest but was paying down the mortgage instead just now had the chance to go back ten years in time and start, investment years that is.

  33. 2invest on February 21, 2009 at 12:28 pm
  34. Sukh on March 31, 2009 at 3:53 pm

    I like this discussion. I have another idea. Instead of paying Interest + Principle payment. We just pay interest payment and take a investment loan and pay interest for that loan from the principle amount which we are not paying. On the other hand, goverment gives tax- benefit if we take investment loans. So, instead of just paying money into your mortgage and loosing the value to inflation over time. This way we can save for the retierment and pay off mortgage with the same amount. This is the only way we can get tax- benefit from the goverment on the same mortgage where we don’t get if we do it in conventional way.

  35. DAvid on March 31, 2009 at 10:32 pm

    Sukh: You should do more research. There are more cost effective ways to accomplish the goals you express in your note.

    You might start looking for “tax deductible mortgage” to begin.


  36. Sukh on April 1, 2009 at 3:00 am

    Thanks David!

    I am just a rookie. I just graduated from college. So, I have long way to go. Thanks for the feedback, I will definitely look for “Tax deductible mortgage”.

  37. sue on April 28, 2009 at 12:34 am

    what do u think about interest only mortgage… only interest and invest the differance….

  38. Sukh on April 29, 2009 at 1:14 am

    Diifference in the sense that. If we are going with Variable or Fixed Mortgage we are lets say pay $2000 per month. But if we go with HELOC we might be paying around $1400 or less. So, the rest of 600 we can invest it every month. Or we can take investment loan of $100,000 who’s monthly payment will be around 400$ during current market conditions. All the intrest you will pay on your Investment loan will be tax-deductable.

  39. sue on April 29, 2009 at 2:07 pm

    interest only mortgage is much better then heloc cos u will get better rate on interest only. heloc is good when interest rate is high even with interest only we can get 100,000 loan and do the same thing with u told to make it tax-decductable.

  40. sue on April 29, 2009 at 2:10 pm

    Hi sukh i think interest only mortgage is much better then heloc cos u will get better rate on interest only. heloc is good when interest rate is high even with interest only we can get 100,000 loan and do the same thing with u told to make it tax-decductable. rest u might be knowing better cos i m still learning.

  41. Sukh on May 8, 2009 at 11:11 pm

    Same here Sue. I am still learning. Hope you make the good decision.

  42. cannon_fodder on May 10, 2009 at 11:51 pm

    This is a response to Kris B’s intriguing thought. Instead of borrowing home equity as it accumulates to invest in a non-registered portfolio, borrow to invest in an RRSP, and apply the full refund to the mortgage. This uses a readvanceable mortgage so there is a lot of flexibility to do this as each payment is applied.

    So, I tweaked my SM Calculator to allow for this scenario. Here is what I found:


    – $300,000 House Value
    – $240,000 Mortgage @ 5%
    – $1,395.85 monthly payments amortized over 25 years
    – 8% investment growth rate
    – 5.75% HELOC rate
    – Marginal Tax Rate of 46.41%

    It should be noted that higher MTR’s make the case for investing into an RRSP more favourable when compared to the ‘traditional’ SM.

    Here are the outputs:

    With SM –
    – Mtg is retired in 21 years
    – $240k HELOC that is TAX DEDUCTIBLE
    – investment portfolio of $304,142 that is NON-REGISTERED
    – Adjusted cost base (not including commissions) of $138,516

    With RRSP
    – Mtg is retired in 18.25 years. Therefore, run the scenario until 21 years still making ‘mortgage payments’ but the money now goes to paying the HELOC interest and anything left goes into RRSP.
    – $240k HELOC that is NOT TAX DEDUCTIBLE
    – investment portfolio of $395,143 that is in an RRSP

    Assuming the same MTR as used above, the net of it is whether a $240k LOC that costs $13,800 after tax to service annually and a fully taxable portfolio of $395k (that would be worth $212k if cashed out all at once) is better than having a $240k LOC that costs $7,650 after tax to service annually and a $304k portfolio (that would be worth about $265k if cashed out all at once).

    If, however, your MTR is lower when you cash out (e.g. < 30%), then the advantage swings to the RRSP investment – especially if you can get rid of the HELOC quickly.

  43. Kris B on May 11, 2009 at 7:23 pm

    Cannon, thank you very much for your calculations. It seems you answered my question, for a higher MTR investing in a non-reg account is best as you loose much less of your investment to taxes than an RRSP if you retire the HELOC. However if the MTR is lower I can see that both the HELOC payments, and tax loss would be much closer. Overall I think it’s conclusive that a non-reg account is better for most using the SM. However I am still interested in other calculations showing a combination of the two. Such as investing the RRSP return in the non-reg account each year, plus monthly contributions to each.

  44. EricJ on October 27, 2009 at 2:07 pm

    I would like to offer a third option…

    Use the extra funds to purchase a multi family building. The rents will always increase and you can leave the building to your heirs. In addition, the monthly income will not simply disappear because the property value has declined unlike many retirement vehicles where your monthly income from those depends upon their value.

    EricJ –

  45. BC on February 5, 2010 at 1:41 am

    In my case, a $27000.00 mortgage @ 2.75% will take me approx. 1.6 years to pay off. I will then have access to approx. $70,000.00 of liquid income for the next 10 to 12 years. Take into account, a little spending of that money, $600,000.00 when I retire, will certainly suffice whether I spend a dime on rsp’s. Add that to a company pension, canada pension and oas and I will struggle more with how to avoid taxation than wondering if I am going to outlive my rif. I’m not bragging about my situation but just explaining my facts. Markets will come back as they always do and anyone in a long term mortgage as opposed to my situation, will no doubt benefit, from regular house payments and increasing rsp investments over the term of the mortgage as well as dumping the tax return against the principal.

  46. GS on February 26, 2010 at 11:30 pm

    FT, the link to the RRSP vs Mortgage Calculator link needs updating to:

  47. Ken on June 10, 2010 at 9:57 pm

    I’d choose none of the two options above.

    Contributing to personal mortgage means that you are freezing the money forever (until end of mortgage or sell of house)

    Contributing to RRSP means more money to institions (government) and less money for you. It’s true you save on tax bracket NOW – but not later. If you plan to redeem the money – plan to pay big.

    Therefore, the best solution is to invest that money in rental property – even if the rental income doesn’t cover the expense – because the expense will directly be reduced from your income – just like RRSP. The only difference is that your rental property now becomes a money generating medium that you phisical see and own (unlike RRSP). And the value of properties are generally increasing (unless a recession, but even then, don’t your RRSP go down in a recession?)

    There will only be more people in this world. However, there will not be more land on earth. Therefore, i suggest investing in rental properties.


  48. Ed Rempel on June 11, 2010 at 1:26 am

    Hi Ken,

    Have you driven around Canada lately? You know how much vacant land we have? In northern Ontario, you can drive 2,000 kms. with hardly any civilization. You could set off nuclear bombs and nobody would notice!

    On the prairies, there are many places you can drive 4-6 hours on a major highway and see nothing but crops.

    We also have millions of lakes, so believe it or not, every single Canadian could own a 1-acre lot on a lake!

    I extrapolated the earth’s population and growth rate with the amount of land very roughly. In perhaps 5-600 years, if there is no interruption in our population growth, then we may start to see land shortages.

    In the mean time, sorry, but I’ve heard the “they ain’t makin’ any more land” argument many times. Drive from Toronto to Vancouver and then tell us what you think about the likelihood of a shortage of land.


  49. David on November 18, 2010 at 2:20 pm

    My rule of thumb, It is better to pay down your mortgage, unless your RRSP return minus inflation is consistently higher than the rate on your mortgage plus possible income from this property.(Renting a room. in your house to somebody or maybe renting all house or maybe you will want to tern your house into little motel)
    In addition to that do not forget about smith m. which makes the mortgage option even more worthwhile.
    RRSP worthwhile?! Maybe! But mortgage is even better since It is difficult to find not risky short term RRSP investment with a return higher when a typical mortgage.

    Do not forget about inflation and do not forget that your RRSP is still taxable when you withdraw it. Do not forget that you might need to wait even more time until your income is low and it make sense to withdraw from your RRSP.

    As well do not forget that you can rent a room in your house and generate even more profit. Do not forget about the rate appreciation. Appreciation of an asset is an increase in its value which is roughly speaking is equivalent to the rate of inflation.

  50. Vision Investment Properties on June 15, 2012 at 6:54 pm

    Why does it have to be one or the other? If you have enough in your RRSP account, you can use it to pay off your high rate of interest bank mortgage and then pay the RRSP account back at a predetermined monthly rate. That way you’re paying down the mortgage faster, while saving more each month to either put toward RRSP contributions or investing further for even more income potential. This is only one RRSP-mortgage option. There are more!

  51. Dan on January 20, 2013 at 11:51 am

    I have an RRSP vs mortgage question for all fellow investors out there. My wife and I owe 366k on our mortgage. We have the option to either make extra lump sum payments towards the mortgage, invest the money in an RRSP or put it into a TFSA. We are considering monthly lump sum payments of $2k that can either go towards the mortgage, RRSP or TFSA.

    With the mortgage I like the idea of eventually having lower payments due to the lump sum payments made. I also like the interest savings. The mortgage rate is 2.6% amortized over 25 years.

    With the RRSP I can probably earn around 7% on the money invested. I like this option because it would increase my tax refund at year end :) I have about $35k RRSP contribution room right now, same with my wife

    The TFSA obviously wins in terms of tax advantage but I wouldnt get a deduction and it wouldnt help the mortgage payments. I have about $3k in a TFSA right now and my wife has none.

    I guess the question is, over a period of 3 years is the interest savings on the mortgage greater than the investment return I could make?

  52. Ed Rempel on January 21, 2013 at 11:29 am

    Hi Dan,

    The short answer is that you will likely make more from your RRSP. You said you expect to make about 7%/year. I’m sure that is much higher than your mortgage, which is probably below 3% today. We are getting mortgages at 2.49%. Investing in your RRSP at 7% is likely better than paying down a 2.5% mortgage.

    Secondly, RRSP is also better because your reason to pay down the mortgage is to reduce your mortgage payments in the future. I have worked out projections comparing RRSP to mortgage and the most significant factor (other than the interest rate vs. RRSP rate of return), is what percent of the mortgage payment will you invest after you pay off your mortgage. If you would invest less than 90%o of it, then the RRSP option will put you farther ahead.

    You have not given us the important facts to give you a real answer, Dan.

    – With your current payment, will your mortgage be paid off before you retire?
    – With your current RRSP/TFSA contributions, are you on track to have the retirement you want?
    – What tax bracket are you in now and what tax bracket to you expect to be in after you retire?

    To answer your question fully, I would have to understand the big picture of your financial position.


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