FolioNorth

Canadian Cash Allocation Tool

Mortgage Paydown vs Invest Calculator

Pay down the mortgage, or invest? Compare the after-tax math for Canadian homeowners. The answer depends on your mortgage rate, your expected return after tax, the account you'd invest in, and how long you have.

The cash you have to deploy

$

Extra cash you can deploy right now.

$

Extra cash you can deploy each year for the horizon.

Your mortgage

$
%
yr
mo
%

Your contract's annual prepayment limit (% of original balance). Soft warning only, and does not change the calculation.

Where you'd invest

Where the old mortgage payment goes once the mortgage is gone. If your TFSA/RRSP are already maxed, this is realistically non-registered, where it faces tax drag. Choose 'Spend it' if you'd just enjoy the freed-up cash flow instead of investing it.

%
yr
Advanced: non-registered distribution model

How a non-registered fund's yearly taxable distributions are taxed. Defaults estimate 2025 XEQT's taxable distributions (~1.4%) and are only a rough guide, so check your own fund's distribution breakdown and enter the correct numbers. Whatever isn't distributed (price appreciation plus return of capital) compounds as unrealized capital gains, taxed at half your retirement marginal rate when sold.

%

Grossed up 38%, then federal + provincial dividend tax credit.

%

Half is taxed at your marginal rate.

%

Fully taxed at your marginal rate.

%

Fully taxed at your marginal rate.

Your tax bracket

$

Used to look up your 2026 marginal rate (currently 29.6% in Ontario).

Sets the horizon tax rate for any RRSP or non-registered balance, including the freed-up-payment sleeve once the mortgage is paid off.

Mortgage vs Invest verdict
$—
Waiting for extra cash, mortgage, and account
Projection
Paydown: net worth at horizon$—
Invest: net worth at horizon$—
Break-even return—
Enter your extra cash, your mortgage details, your income, and pick an investment account.
Verdict
Investing wins by $43,630
A 6.0% expected return in TFSA outpaces locking in the 5.0% mortgage rate over 25 years. Break-even pre-tax return: 4.9%.

Paydown path

Mortgage paid offYear 18
Interest saved vs baseline$103,471
Remaining mortgage at horizon$0
Side portfolio after payoff$290,070
Net worth at horizon$690,070

Invest path

Mortgage paid offYear 25
Total interest paid$297,926
Remaining mortgage at horizon$0
Portfolio (TFSA), after tax$333,701
Net worth at horizon$733,701
At a pre-tax investment return of about 4.9%, investing and paying down come out equal over 25 years. Above that, investing wins; below it, paying down does.

Net worth over time

After-tax net worth = home equity + (after-tax portfolio − any remaining mortgage). Home value is held constant at the current mortgage balance for the comparison.

Year 0: Paydown
$10,000
Year 0: Invest
$10,000
Year 13: Paydown
$260,186
Year 13: Invest
$269,169
Year 25: Paydown
$690,070
Year 25: Invest
$733,701

Next steps

RRSP RefundAn RRSP contribution can cut your tax bill, so estimate what the deduction is worth before deciding where the lump sum goes.RRSP vs TFSAIf investing wins, decide which registered account the money belongs in.Transfer BonusesInvesting the extra cash needs a brokerage account, so see who pays you to open one.

How this works

Two scenarios over the same horizon. Paydown: apply the lump sum and each year's recurring contribution as principal prepayments. Once the mortgage is paid off, both the freed-up regular payment and any remaining recurring contribution are redirected to the same investment account — that's what makes this an apples-to-apples comparison rather than burying the freed cash flow. Invest: the mortgage runs its original schedule and every dollar of extra cash goes straight to the chosen account.

Mortgage interest on a principal residence in Canada is not tax-deductible, so paying it down is a risk-free return at exactly the mortgage rate. Mortgages are amortized using the Canadian fixed-rate convention (annual rate compounded semi-annually, paid monthly).

RRSP refund reinvestment. When the chosen account is RRSP, each after-tax dollar is grossed up by 1 / (1 − marginal rate) on the assumption that the refund goes back into the RRSP. Withdrawals at the horizon are taxed at your expected retirement marginal rate when you provide a retirement income, otherwise at your current marginal rate. At the same rate RRSP and TFSA come out arithmetically identical; a lower retirement bracket makes RRSP better.

Non-registered tax drag. Each year's distributions are taxed by type — eligible Canadian dividends (38% gross-up, then federal and provincial dividend tax credits), capital-gains distributions (50% inclusion at your marginal rate), and foreign income plus bond interest (full marginal); return of capital is untaxed. Whatever isn't distributed compounds as an unrealized capital gain, taxed at half your retirement marginal rate when sold at the horizon. Distribution defaults are estimated from 2025 XEQT — verify your own fund. The federal government rolled back the proposed 66.67% inclusion in 2025, so we keep the rate at 50%.

What's not modeled. Home appreciation (the home value is held constant in both scenarios and cancels out), inflation, prepayment penalties beyond the soft contract-limit warning, OAS / GIS clawbacks, unrecoverable foreign withholding tax inside the fund, and the discipline question of whether you'll actually invest the recurring contributions every year.

This is not advice. Numbers are sensitive to the expected return and the marginal rate — both of which are guesses. Use this to anchor a conversation, not to make the call.

Frequently asked questions

What return do I need before investing beats paying down the mortgage?+
Paying down a mortgage is a guaranteed return equal to your mortgage rate, and it is effectively after-tax because mortgage interest is not deductible on a Canadian principal residence. So the comparison is your mortgage rate against your expected return after tax. In a TFSA the two are directly comparable. In a non-registered account you need a higher gross return to clear the same bar, because tax takes a share of the distributions along the way.
Why does the account I invest in change the answer?+
Because tax treatment differs sharply. A TFSA compounds tax-free, so its return competes with the mortgage rate one-for-one. An RRSP contribution generates a refund that can itself be invested, and the withdrawal is taxed later. A non-registered account is taxed each year on distributions, by type: eligible Canadian dividends get the gross-up and credit, capital-gains distributions are half-included, and foreign income and bond interest are taxed at your full marginal rate.
Does the calculator use the Canadian mortgage convention?+
Yes. Canadian fixed-rate mortgages are quoted with interest compounded semi-annually and paid monthly, which is not the same as the US monthly-compounding convention and produces a slightly different payment. The effective monthly rate here is derived from the semi-annual rate rather than dividing the annual rate by twelve, so the amortization matches what your lender would show.
What is the prepayment privilege warning?+
Most Canadian lenders cap how much extra principal you can pay in a year, commonly 10% to 20% of the original balance, with anything above that triggering a penalty or simply being refused. The calculator checks your lump sum and recurring prepayments against the cap you enter and flags the first year that exceeds it, because a plan your mortgage contract will not allow is not a plan.
What happens to the mortgage payment after the mortgage is gone?+
It gets redirected, and modelling that matters. Paying the mortgage off early frees the regular payment sooner, and the calculator invests that freed cash flow in both scenarios so the comparison stays fair. You can send it to a different account than your main contributions, which reflects the common case of someone whose TFSA and RRSP are already full by the time the mortgage clears, or mark it as spent if that is more honest.
Is there an answer that is right regardless of the numbers?+
Only that high-interest debt comes first and an emergency fund comes before either. Beyond that the arithmetic is genuinely close for most Canadians at current rates, which means the tiebreaker is usually psychological rather than financial. A guaranteed return and a smaller balance owing is worth something real to people who lose sleep over debt, and that is a legitimate input even though no calculator can price it.
What does this model leave out?+
Quite a lot, deliberately. Home price growth is excluded, so the house is held at its initial value rather than assumed to appreciate. It does not model renewal at a different rate, breaking a mortgage, refinancing costs, variable rates, sequence-of-returns risk, or the Smith Manoeuvre and similar strategies. It is a planning comparison of two disciplined savings plans, not a forecast.