Your net worth is the value of your assets minus your liabilities. Both investing and repaying debt can increase net worth, but which approach is better depends on your goals, tolerance for risk, tax situation and timeline. This guide looks at the key considerations—mortgages, RRSPs, TFSAs, down payments, borrowing to invest, and choices for retirees and parents—so you can make an informed, personalized decision.
Should you accelerate your mortgage payments or invest?
At a fundamental level, paying down mortgage principal is a form of investing: the return comes in the form of interest savings. If your investments can reliably earn a higher after-tax return than your mortgage interest rate, investing may boost your net worth more quickly. However, in practice you must weigh that potential upside against the certainty of savings from paying down debt, tax differences, liquidity needs and emotional comfort with carrying debt.
Contribute to an RRSP or pay off a mortgage?
A simple comparison is to look at your mortgage interest rate versus your expected investment return. But taxes and account type matter. Investment returns in taxable accounts are reduced by tax; returns inside a TFSA are tax-free; returns inside an RRSP are tax-deferred and should be evaluated with the tax deduction on contribution and future tax on withdrawal taken into account. In other words, the same nominal return can look very different after taxes and timing are considered.
Before deciding, estimate your expected after-tax returns in each available account, compare them to your mortgage rate, and factor in how long you plan to keep the investment and whether you might need the money.
Should you hold your mortgage inside your RRSP?
Legally, a mortgage can be a permitted RRSP investment, but practically it is rare and often restrictive. Few institutions will allow a personal mortgage to be held inside your RRSP, and the administrative and risk considerations can make the arrangement unattractive. If your goal is real estate exposure within retirement savings, there are alternative vehicles—REITs, real estate funds and similar investments—that are easier to hold inside registered accounts.
Marriage or mortgage: Which is the better investment?
Financial priorities around weddings, housing and family formation intersect. Weddings can be costly and might reduce the funds available for a down payment or other long-term investments. Couples should discuss priorities and trade-offs: a memorable wedding day is valuable to many, but a larger down payment can lower mortgage costs and improve long-term financial security. Open conversations about goals, budgets and future plans help couples align spending with shared priorities.
Renting versus home ownership: Can you be financially secure without buying?
“Am I paying down someone else’s mortgage?” is a common concern for long-term renters. The buy-versus-rent decision should be based on personal circumstances—job stability, expected time in the area, available down payment, maintenance responsibilities, and the comparative cost of renting versus owning after accounting for taxes, insurance and upkeep. Renting can be financially sensible in many cases, especially if it enables investing the difference wisely or maintains mobility. Conversely, owning builds equity and can be a hedge against rising rents, but it also brings upfront costs and ongoing responsibilities.
How to invest down payment funds
Investing money earmarked for a home down payment requires careful risk management. Short horizons (one year or less) call for cash or cash-like instruments to avoid the possibility of a market downturn reducing the funds you need. For a three- to five-year horizon, a balanced portfolio lowers the odds of a loss, and for five years or more a diversified stock portfolio becomes more attractive. Always align the investment mix with the timeline and your tolerance for the risk of having to sell at an inopportune time, which could force you to increase your mortgage or delay a purchase.
Borrowing money to invest
Borrowing to invest increases both potential returns and risk. Common approaches include margin accounts, investment or RRSP loans, and borrowing against real estate via mortgages or lines of credit. Interest rates, repayment schedules and tax deductibility vary by method. Borrowing can amplify gains but also magnify losses, and interest costs plus taxes may erode expected benefits. Thoroughly model best- and worst-case scenarios and be cautious about leverage, especially when markets are volatile.
Using a HELOC to invest
Some investors use a home equity line of credit (HELOC) to invest. While interest on borrowed money used for income-producing investments can sometimes be tax-deductible, leveraging home equity introduces risk: declines in investment value or increases in interest rates can leave you with larger debt and less flexibility. For many households, using a HELOC to invest is best reserved for experienced investors who understand the tax, cash-flow and downside risks.
Pay down the mortgage or ramp up an RESP?
Parents often juggle mortgage repayment, retirement contributions and saving for their children’s education. There’s no universal answer: priorities and comfort with debt differ. RESP savings can attract government grants and are earmarked for education, while paying down a mortgage reduces guaranteed interest costs and monthly obligations. Consider the relative importance of these goals, available tax incentives, and whether sacrificing mortgage progress could jeopardize long-term financial security.
Should retirees sell investments to pay off their mortgages?
Many aim to be debt-free in retirement, but selling investments to pay a mortgage depends on account type and tax consequences. Withdrawals from tax-deferred accounts can trigger significant taxes, reducing the effective amount available to repay debt. Withdrawals from TFSAs are tax-free and may be more suitable, while selling investments in taxable accounts can create taxable income or capital gains. Evaluate after-tax proceeds, loss of future investment returns and your comfort with remaining debt before deciding.
Should you cash your RRSP to pay off your mortgage?
Withdrawing from an RRSP to pay a mortgage is generally not ideal. RRSP withdrawals are taxed as income and reduce your contribution room permanently. A large withdrawal can increase your tax bill and may affect benefits that are income-tested. In many cases, it’s better to leave RRSP investments untouched unless the tax cost and long-term impact have been carefully considered.
Should you sell investments at a loss to pay off debt?
Selling investments at a loss to repay debt requires careful tax and strategic planning. Capital losses in non-registered accounts can offset gains, but repurchasing identical securities within a short window may trigger superficial loss rules that disallow the loss. In some situations, selling and restructuring holdings or borrowing to repurchase under a tax-deductible arrangement can make sense, but always review the tax consequences and alternative options first.
What is tax-loss harvesting?
Tax-loss harvesting is a strategy in non-registered accounts where investors sell securities at a loss to realize capital losses that offset capital gains. These losses can reduce tax payable for the year and can often be carried back or forward within tax rules. Be mindful of rules that prevent claiming losses if you repurchase the same or identical securities within a restricted timeframe.
Should you pay off debt or invest?
There is no one-size-fits-all answer. A balanced financial plan often combines both an investment strategy and a debt repayment plan to use cash flow productively. Key factors to weigh include interest rates, expected after-tax investment returns, risk tolerance, time horizon, liquidity needs and emotional comfort with carrying debt. Use realistic assumptions, run scenarios, and consider seeking personalized financial advice to align decisions with your long-term goals.