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
Your contract's annual prepayment limit (% of original balance). Soft warning only — 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.
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 — 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.
Paydown path
Invest path
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.
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.