The Canadian Debate: Pay off Mortgage, or Pay Into RRSPs?

It’s a question that’s been asked ever since both mortgages and RRSPs have existed: should you pay off your mortgage first, or invest in RRSPs? The question is definitely a good one, and one that’s difficult to answer without knowing your specific situation. However, it really does all boil down to one thing – taxes. And if you’re one of those people who likes to have it all, there’s really only one answer to this burning question – do both!
The first option, which is to take any extra money you have lying around and use it to pay off your mortgage, is an attractive one for many. And it’s not even hard to see why. Paying off your mortgage faster, even with the prepayment fees that sometimes come with it, means that you’ll get out of debt sooner. That’s appealing enough on its own, but consider what you can put that money towards once that debt is paid off, and you can see why many people don’t even ask the question before they decide to start paying down their mortgage.
Mortgages though, unlike RRSPs, are not tax-deductible and so if you decide to use your extra money to pay it down, you’re not really going to be reaping any benefits in the meantime. However, invest that money into an RRSP, and you can deduct it from your taxes and you’ll earn compound interest on that money and you’ll have more money when you retire! Yep, those are all the benefits that come with leaving your mortgage alone and instead putting that money towards your retirement. But, will you still then have a huge mortgage payment during your golden years? And how much interest will you have paid on your mortgage by then? Those are the downsides that come with investing in RRSPs instead, and they’re the reason that there’s only one good solution: do both!
How? First, take that extra money and put it into your RRSPs. You’ll still earn that compound interest, you’ll have more money when you retire, and it will be tax-deductible. Then, when you get all that money back from your tax refund, use that to pay down your mortgage. You’ll still pay off your mortgage earlier and save yourself a bit of that interest you’ll be paying over the extra years. You still may not pay off your mortgage as early as you’d like to, but you’ll still get rid of it sooner rather than later, and you’ll be saving more money for retirement. When you just can’t decide, it really is the only way to get the best of both worlds.