Introduction
Should I pay down my mortgage or invest in my RRSP?
Your best option depends on the following factors:
- Mortgage rate
- Remaining term on mortgage
- Years to retirement
- Future rate of investment return
- Marginal tax rate
What happens if you put the money in your RRSP?
You get tax-free compounding of your investments and a tax refund that you can re-invest in the RRSP.
What happens if you pay down your mortgage?
You get reduced mortgage payments and you can invest the monthly savings (and RRSP deduction tax refunds) in your RRSP.
If the results are close...
Remember that the calculation is based on assumptions and that changing them will yield different results.
In the end, if the results are close, then either option may be resonable.
Data Input
To get a sense of which alternative is better, complete the information and click the Refresh button on the Actions menu.
Results
Should I pay down my mortgage or invest in my RRSP?
You must click the Refresh button on the Actions menu to update the calculations.
If you choose to pay down your mortgage, the monthly savings resulting from lower mortgage payments and tax refunds invested in your RRSP will amount to $16,669.
If you choose to invest in your RRSP, the lump sum amount and reinvested tax refund will accumulate to $18,233.
So, based on the information above, you may be better off investing in your RRSP than paying down your mortgage.
The Mortgage vs. RRSP Calculator uses the following assumptions in the calculations:
- The mortgage can be paid down without incurring penalties
- The Mortgage rate is compounded semi-annually
- The mortgage is payable monthly at the beginning of the month
- The RRSP deduction tax refund is available immediately for re-investment
- The RRSP deduction limit is sufficient to allow RRSP contributions