RRSP vs. Mortgage

One of the most significant questions around the Canadian personal finance world is decision between paying down your mortgage, or putting money into your RRSP? You can make a compelling argument depending on your personal situation.

Let’s explore some options:

A. Pay down your mortgage first, then start contributing to your Registered Retirement Savings Plans.

  • 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 (we are still sitting around 40 year lows for rates).
  • This option might be considered for people who have a lower tax bracket.
  • In addition to this, people who are in lower tax brackets, may also consider a TSFA for their long term strategy VS. an RRSP.

B. Keep making the regular mortgage payments, but maximize your Registered Retirement Savings Plans.

  • 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.

C. Do BOTH. Maximize your Registered Retirement Savings Plans and use the tax refund to pay down your mortgage.

  • This could be the optimal solution in my opinion.
  • It is important to execute a net-worth statement each year, when using this strategy.
  • 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).

Disclaimer: Mutual funds, approved exempt market products and/or exchange traded funds are offered through Investia Financial Services Inc. The particulars contained herein were obtained from sources which we believe reliable but are not guaranteed by us and may be incomplete. The opinions expressed have not been approved by and are not those of Investia Financial Services Inc. This website is not deemed to be used as a solicitation in a jurisdiction where this Investia representative is not registered.

The comments contained herein are a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. This RRSP vs. Mortgage was prepared by Bradley Walton who is a Investment Funds Advisor at Walton Financial Group. a registered trade name with Investia Financial Services Inc., and does not necessarily reflect the opinion of Investia Financial Services Inc. The information contained in this presentation comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability.

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