This is one of the most common questions I’m asked, and the answer is never the same for everyone. The right move depends on your goals, your tax situation and how your mortgage fits into your bigger financial picture. Here’s an easy way to think about the options so you can decide what supports the life you’re building.
When Contributing to Your RRSP Makes Sense
RRSP contributions reduce your taxable income, which often means a nice refund at tax time. Many of my clients use that refund to boost their retirement savings or even make a lump sum payment on their mortgage.
Your RRSP also grows tax deferred. So if you have years ahead of you before retirement, those contributions have time to compound and build real long term wealth. This can be especially helpful if you feel behind on retirement planning or you’re in a higher tax bracket and want to take advantage of the immediate tax savings.
When Paying Down Your Mortgage Comes First
Putting extra money toward your mortgage gives you something powerful. Guaranteed savings. Every additional dollar chips away at the principal and reduces the interest you’ll pay over the life of your mortgage. It also shortens your amortization if you prepay consistently.
For many people, lowering debt simply feels good. More equity, more security and one less thing weighing on you financially. If your mortgage rate is higher than what you expect to earn from conservative investments, focusing on the mortgage often delivers better value.
Key Things To Think About
Compare the rates. If your investments will likely grow faster than your mortgage interest, the RRSP can be the smarter choice. If not, the mortgage usually wins.
Your tax bracket matters. Higher income earners tend to get more immediate value from RRSP deductions.
Your timeline matters. Younger buyers may want to prioritize RRSP growth. Those closer to retirement may want the peace of being mortgage free sooner.
Cash flow matters. Extra payments build equity but lock those funds inside your home. RRSPs and other investments may give you more flexibility if you need access to money later.
A Balanced Strategy Is Often Best
You do not always have to choose one or the other. You can split extra funds between both. You can also use your RRSP refund to make a lump sum mortgage payment. Sometimes a blended approach gets you the best of both worlds.
If you want to run through your own numbers and find the balance that makes sense for you, reach out anytime. I’m here to help you build a strategy that supports both your home and your future.