Pay down the mortgage or invest (RRSP, TFSA, FHSA)?

What return do I get from paying down my mortgage?

Exactly your mortgage rate, after tax, with no risk. Interest on a mortgage for the home you live in isn't tax-deductible in Canada, so a dollar of principal you pay off saves interest that you would otherwise pay out of after-tax income. On a 5% mortgage, prepaying is the same as a certain 5% after-tax return for as long as the mortgage would have lasted.

That makes the comparison simple to state: an investment is only better if it earns more than your mortgage rate after tax and after allowing for risk.

What does an investment need to earn to beat a 5% mortgage?

In a taxable (non-registered) account, it depends on your marginal tax rate and the kind of income. Interest is fully taxed; only half of a capital gain is taxed in 2026. Here is the before-tax return needed to match a 5% mortgage, at 2026 rates:

Marginal rates from Finvo's 2026 tax engine, the one behind the income tax calculator: federal plus provincial income tax on the next dollar of salary, with the basic credits. Return needed = 5% ÷ (1 − tax rate on that income). Capital gains assume the gain is realised and taxed each year, which overstates the tax if you hold for years; dividends fall in between.

Inside a TFSA there is no tax, so the hurdle is simply 5%. Inside an RRSP it is about 5% too if your tax rate when you withdraw is the same as when you contributed, and lower than 5% if your rate in retirement is lower.

Should I use my RRSP refund on my mortgage?

For many people, it's the best of both: contribute to your RRSP, then put the tax refund on the mortgage as a lump sum within your prepayment privilege. The contribution grows tax-deferred for retirement, and the refund pays down debt at a known, risk-free rate.

Assumptions: income tax with and without a $10,000 RRSP deduction on employment income, from Finvo's 2026 tax engine; the refund paid on the mortgage at the end of year 1 ("once") or at the end of every year until the mortgage is gone ("every year"); the mortgage is $500,000 at 5%, compounded semi-annually, 25 years, $2,908.02 a month. On $60,000 the refund is less than 28.2% of $10,000 because part of the deduction falls into the lower bracket.

Two cautions. The RRSP money is taxed when you take it out, so the refund is partly a loan from your future self; it's a good deal when your tax rate in retirement is lower than today. And spending the refund instead of using it is the most common way the strategy loses its edge. The RRSP tax savings calculator shows your refund, and our guide to RRSP vs TFSA covers which account suits your income.

Is a TFSA better than paying down the mortgage?

A TFSA wins on flexibility. You can withdraw at any time, tax-free, and the amount you withdraw is added back to your room on January 1 of the next year. Money you put on a closed mortgage is gone unless your lender lets you re-borrow it or you borrow against the home, which costs interest and needs approval.

On return, it depends on what the TFSA holds. A savings account or GIC in a TFSA that pays less than your mortgage rate loses to prepaying. A diversified investment portfolio may earn more over many years, with ups and downs. Over 25 years, $10,000 growing at a steady 5% (like prepaying a 5% mortgage) becomes about $33,900; at 7% it would be about $54,300, and at 3% about $20,900. Only the mortgage's 5% is certain.

The TFSA limit is $7,000 for 2026. Our guide to TFSA mistakes covers over-contributions and withdrawals.

Can I use an FHSA if I already have a mortgage?

Usually not. A first home savings account is for first-time home buyers: to open one, you generally can't have lived in a home that you or your spouse or common-law partner owned, in the current year or the previous four calendar years. Most people paying down a mortgage on the home they live in don't qualify.

Even with an FHSA, a tax-free withdrawal must be for buying or building a qualifying home: you need a written agreement, you must intend to live there within a year of buying it, and you can't have acquired the home more than 30 days before the withdrawal. So an FHSA can't be used to pay down a mortgage you already have. If you no longer need it, the CRA allows a direct transfer to your RRSP without using RRSP room.

If you're saving for a first home, the FHSA usually comes before paying down anything: up to $8,000 a year, $40,000 in total, deductible going in and tax-free coming out for a qualifying home.

Risk and liquidity: the part the numbers leave out

• Certainty. Prepaying is a sure return. Investments can fall, sometimes for years, just when you might need them.
• Access. TFSA money is available tomorrow. RRSP money is taxed when withdrawn. Mortgage prepayments are locked up.
• Renewal risk. A smaller balance at renewal means a rate rise hurts less, and you have more choice of lender.
• Rates change. At 2% a mortgage is a low hurdle; at 6% it is a high one. Look again at each renewal.
• Peace of mind. Many people value being debt-free by a certain age. That counts, even if a spreadsheet says otherwise.

A simple decision table

Can I borrow against my home to invest instead?

You can, and if the investments are in a non-registered account and can earn income, the interest can be tax-deductible. That's the idea behind the Smith Manoeuvre. It's leveraged investing: losses are magnified, and you still owe the loan if markets fall. Interest on money borrowed to contribute to an RRSP, TFSA or FHSA is never deductible; our guide to RRSP loans explains when that borrowing can still make sense.

This guide is general information for people in BC and Alberta about the 2026 tax year, checked against the CRA's and the Financial Consumer Agency of Canada's pages on 5 Nov 2026. Investment returns are illustrations, not forecasts. It isn't financial, tax, investment or borrowing advice for your situation.