Should We Pay Down the Mortgage or Invest?

If you've ever had a little extra money left at the end of the month and wondered what to do with it, you're not alone. One of the most common questions I hear from Canadian couples is:

"Should we pay down our mortgage or invest that money instead?"

The answer? It depends - but the good news is you can make a confident decision once you understand the trade-offs.

Why Paying Down the Mortgage Can Make Sense

For many people, the idea of being mortgage-free is deeply appealing, and for good reason:

• It's a guaranteed return: If your mortgage rate is 5%, every dollar you put toward it saves you 5 percent.

• It reduces financial stress: There's peace of mind in knowing you own your home outright.

• You're less vulnerable to rate hikes: Paying down the principal sooner means less exposure to rising interest costs.

For couples who value security and predictability, accelerating the mortgage can be a great move.

Why Investing Might be the Better Move

On the other hand, investing that money could potentially offer a higher return, especially over the long term:

• Market returns can outpace mortgage rates: Historically, a diversified portfolio has earned more than today's mortgage rates.

• You keep flexibility: Investments in a TSA, for example, can be accessed in the future with triggering the taxes.

• It supports longer term goals: If you're behind on retirement savings, investing may help you catch up. 

This path might appeal to couples who are comfortable with some market risk and want to build wealth outside their home.

How to Decide What's Right for You

There's no one size fits all answer, but here are a few things to consider:

• Time horizon: If you plan to stay in your house for the long term, paying it down might feel more worthwhile.

• Risk Tolerance: Are you OK with market ups and downs, or do you sleep better knowing your debt is shrinking?

• Mortgage rate vs expected return: If your mortgage is 2 percent and your portfolio could earn 6 percent, the math may favour investing.

• Tax efficiency: TFSAs, RRSPs, and RESPs offer different benefits, knowing how to use them well can boost your long-term gains. 

A Quick Example

Let's say you have $1000 per month in surplus income. You could:

• Put it toward your mortgage and save interest.

• Invest in a TFSA and potentially grow your savings faster.

• Or even split it - $500 to the mortgage adn $500 to investments.

There is no wrong answer, only what fits your goals best.

The Bottom Line 

You don't need to guess your way through this. A personalized plan can show you exactly how each option affects your future and often, the right choice is a blend of both.

If you want help running the numbers and making a confident decision, I'd love to help!

Work with an advice-only financial planner in Canada who puts your goals first.