Last week, Eva, our in-app AI model, gave an answer that genuinely stopped us in our tracks. A user asked the classic question: “Should I put extra cash toward my mortgage or invest it?” Instead of a rule of thumb, Eva laid out a clear, personalized comparison, risk versus certainty, interest rates versus expected returns, and how taxes, accounts, and timing change the answer. This is Optiml at its best: tax-aware, scenario-based planning that speaks to your numbers.

The Core Trade-Off (Plain English)

Prepaying your mortgage is like earning a guaranteed, after-tax return equal to your mortgage rate. In Canada, mortgage interest typically isn’t tax-deductible, so a 5% mortgage is a 5% after-tax “hurdle.”

Investing may deliver a higher return over time, but it’s uncertain and volatile. Your results depend on account type (TFSA/RRSP/non-registered), your time horizon, and how you handle market ups and downs, especially near retirement.

Quick Numbers (to ground it)

Assume you can put $1,000/month to work for 10 years:

• Prepay mortgage @ 5% (think: guaranteed 5% after-tax return): Future value ≈ $155,300
• Invest @ 6% (TFSA) (tax-free but market risk): Future value ≈ $163,900

That’s only about $8,600 more for taking market risk over 10 years. Over 20 years, the gap widens (≈ $462k at 6% vs. ≈ $411k at 5%), but so does your exposure to volatility.

Note: In a taxable account, after-tax returns are often lower (capital gains/dividends taxed), which can tilt the math toward mortgage prepayment. In an RRSP, the value depends on contributing at a higher tax rate today than your withdrawal rate in retirement.

When Paying the Mortgage Early Tends to Win

• Your mortgage rate is high relative to your realistic after-tax investment return
• You’re within 1–5 years of retirement and want less sequence-of-returns risk and lower fixed costs
• You value certainty and the psychological boost of being mortgage-free
• You’re using taxable dollars (vs. TFSA/RRSP)

Watch-outs: prepayment penalties, draining emergency funds, skipping employer matches, or triggering tax by withdrawing from RRSPs to pay down debt.

When Investing Tends to Win

• You can invest in TFSA (tax-free) and/or RRSP (high marginal rate now, lower expected rate later)
• Your long-term expected return meaningfully exceeds your mortgage rate
• You have sufficient time horizon and can ride out volatility
• You want liquidity; investments are easier to access than home equity

A Smart Middle Ground (What Eva Often Recommends)

• Prioritize TFSA; tax-free withdrawals add huge flexibility in retirement
• Use RRSP if your current bracket is high; plan withdrawals to manage future taxes and potential OAS clawback
• Allocate a portion to extra mortgage payments, especially if rates are steep or retirement is close
• Revisit annually as rates, markets, income, and goals evolve

Why Optiml Beats Rules of Thumb

Rules ignore your specifics. Optiml models CPP/OAS timing and clawbacks, withdrawal order across RRSP/RRIF, TFSA, non-registered, and CCPC funds, and incorporates real estate, businesses, insurance, and inheritances. Then it runs side-by-side scenarios, like $1,000/month to mortgage vs. TFSA vs. RRSP with your province’s tax rules and your retirement date. You see total wealth, lifetime taxes, volatility, and time to mortgage-free, clearly, in one place.

Bottom Line

If your mortgage rate is close to your after-tax investment return, prepaying is a strong, low-risk choice, especially near retirement. If you can invest in TFSA/RRSP at returns well above your mortgage rate, and you’re comfortable with market swings, investing can come out ahead. The “right” answer depends on your accounts, tax bracket, horizon, and risk tolerance.

Next step: run both paths in Optiml with your actual balances and goals. It’s free to try for 14 days, and you can book a quick walkthrough in-app.

Educational only. Not financial advice. Everyone’s situation is unique.