Mortgage Prepay vs Invest Calculator
You've got spare cash each month — should it go on the mortgage or into investments? This compares them the fair way: it holds your total monthly outlay identical on both paths and weighs your after-tax net worth at the end, with the real tax treatment of a TFSA, RRSP or non-registered account. Prepaying is a guaranteed after-tax return equal to your mortgage rate; investing isn't — so it also shows the return you'd need to come out ahead and, with a Monte Carlo, the odds you actually do. 2026 rules, educational only.
Wealth built over time — prepay vs invest
These lines assume returns arrive smoothly at your expected rate. Real returns bounce around, so the typical outcome lands a little below the blue line (the cards and range above use that volatility-aware median). The crossover is where investing's smooth path overtakes prepaying.
The range of outcomes
Neither path is a single number — both invest at some point, so both carry a range (10th–90th percentile; the dot is the middle). Paying down the mortgage spends years on guaranteed debt reduction first, so its bar is usually tighter — but once the mortgage's gone it invests too, so it's not a single point. The more the two bars overlap, the closer the call; the further the blue bar's left end sits below the green, the more downside the “invest wins on average” headline is hiding.
Prepay vs every account
Where the money goes changes the answer. A TFSA only has to beat your mortgage rate; a non-registered account has to clear a higher bar because of yearly tax; an RRSP depends on whether you'll withdraw at a lower rate than you deduct at. Dollar figures are wealth built — investments plus mortgage principal paid down.
Year by year: mortgage paydown & investment growth
Watch the two strategies diverge. Pay-down kills the mortgage first (its “owing” column hits zero years sooner), then pours the freed-up budget into investments. Invest carries the mortgage on schedule but builds investments from day one. The highlighted row is where the pay-down path clears the mortgage.
“Owing” is mortgage principal left; “Invested” is the after-tax value of the money put to work on that path. Net worth on each path = Invested − Owing (shown in the cards and chart above).
How this is calculated (the method, and the Canadian details)
- The fair comparison. Both paths spend the same total every month: your normal mortgage payment plus the extra. Prepay throws the whole amount at the mortgage until it's gone, then invests the freed-up budget for the rest of the horizon. Invest pays only the normal payment and invests the extra all along (and invests the freed payment once the mortgage ends on schedule). Same cash out the door either way — so the comparison is honest.
- Net worth, after tax. At the horizon we compare
after-tax investments − mortgage still owing. Your home's value is identical on both paths, so it cancels out and is left out entirely — this is financial net worth, not your whole balance sheet. - Prepaying is guaranteed — until renewal. Every dollar of principal you pay early saves the mortgage interest on it — a risk-free, after-tax return equal to your mortgage rate. Canadian mortgage interest on your home isn't tax-deductible, so that's the full rate, with no tax shield. That's the bar investing has to clear. One caveat: the rate is held constant here, but it actually resets at each renewal (typically every few years), so the guaranteed return is only locked in until then.
- Contribution room. With “Cap at my available contribution room” on, each year only your real TFSA and RRSP room is sheltered — new room is added annually (TFSA $7,000; RRSP 18% of income up to the limit) — and anything above spills into a taxable account, taxed more. This matters a lot when the prepay path invests the whole freed-up budget after payoff: most of it can't fit in registered accounts, so it doesn't out-shelter the mortgage as easily as an unlimited-room model would pretend. Turn the cap off to assume unlimited room. Simplification: we keep adding RRSP room at 18% of income for the whole horizon — we don't model the age-71 RRIF conversion that stops new room, so a long horizon may over-credit RRSP room.
- TFSA. After-tax money in, tax-free growth, tax-free out. The break-even return is essentially just your mortgage rate (its effective-annual equivalent) plus fees.
- RRSP. The contribution is deductible, generating a refund at your current marginal rate. We reinvest that refund in your TFSA (up to room, then a taxable account) — the standard “put your refund in your TFSA” approach, so the refund isn't taxed a second time. Growth is tax-deferred, and the whole RRSP balance is taxed at your retirement marginal rate on withdrawal. So the RRSP wins when you'll withdraw at a lower rate than you deduct at (rate arbitrage) — set your retirement income to capture that. Simplification: we tax the whole RRSP at one retirement rate, but a real RRIF is drawn down over many years and could span brackets or trigger the OAS clawback — so a very large RRSP may be taxed a bit more than shown.
- Non-registered. After-tax money in, with a yearly tax drag on the distributing part of the return, plus capital-gains tax on the gain at the end — a flat 50% inclusion × your marginal rate (the 2024 proposal to raise that to 66.7% over $250k was cancelled, so 50% stands for 2026), realized in a single lump at the horizon. We tax distributions as ordinary income, the harshest case: a bond fund or HISA throwing off interest. Eligible Canadian dividends are taxed far more gently, so for an equity ETF this understates the non-registered result — a deliberate, conservative lean toward the guaranteed mortgage paydown rather than toward a taxable account. If your taxable holdings are equity-heavy, read the non-registered case as a floor.
- Marginal rates come from the 2026 combined federal+provincial schedule for your province and income. They're a best estimate, not a tax return — they don't model credits, clawbacks, or the exact dividend mechanics.
- The break-even return is solved by searching for the return at which investing exactly ties prepaying, holding everything else fixed. It's reported as a pre-fee (gross) return — the kind you'd shop for.
- The Monte Carlo draws thousands of random market paths (lognormal monthly returns with your expected return and volatility) and applies the same path to both sides each run, then counts how often investing ends ahead. It's how we turn “investing beats your mortgage on average” into “…and here's how often, and how wide the range.” The mortgage side doesn't move — it's a fixed schedule — so all the uncertainty is on the invest side, which is the honest picture.
- Returns compound monthly from the annual figures (
(1 + annual)1/12 − 1); the mortgage uses the Canadian semi-annual convention. RRSP refunds are reinvested once a year, the way they actually arrive at tax time. - Today's dollars. The headline gap is shown both in future dollars and in today's purchasing power using your inflation rate. Inflation only rescales the dollars; it doesn't change who wins.
- What it ignores. Mortgage prepayment privilege limits (closed mortgages usually cap prepayments at ~10–20%/yr), the liquidity you give up by locking cash into the house, the behavioural reality that many people don't actually invest the difference, asset-location nuance (which assets sit best in which account), and every non-financial reason to be debt-free. A real decision is more than the math.
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