Contact: Judy Culford

January, 1996

Phone: (519) 663-2252

Maximize RRSP or Pay Down Mortgage?

You’ve got some extra money to invest. Do you put it into an RRSP or use it to pay down the mortgage? “The right answer not only affects the size of your retirement fund, but also your short-term financial security”, says Talbot Stevens, speaker and author of Financial Freedom Without Sacrifice.

SECURITY FIRST. For most people, the short-term security aspect is more important than the mathematics, especially now that job security has gone the way of the dinosaur. An RRSP can double as an emergency income buffer to protect against low- or no-income periods.

“This is the real reason that most people should maximize their RRSP before paying down their mortgage. Ironically, many people want to pay down their mortgage to eliminate the risk of losing the house. But having an ‘RRSP emergency fund’ instead of a slightly smaller mortgage would allow you to continue mortgage payments, and could make the difference between losing and keeping the house”, says Stevens.

MATHEMATICS. Mathematically, most people should maximize their RRSP before paying down a personal debt like a mortgage, unless the interest rate on the debt is at least 3% higher than their average RRSP return. For example, if you expect your RRSPs to average 10%, you should only pay down debts charging 13% interest or more. This means that paying down bank and department store credit cards rank ahead of RRSPs, but generally not mortgages.

After extensive analysis of 24 scenarios, Stevens found that the most significant factor was the percentage of mortgage money that is invested once the home is paid off. Obviously, if you never invested any of the freed up money after the mortgage is gone, the RRSP is the better choice because eventually you end up with a debt free home and a retirement fund.

Most RRSP vs. mortgage paydown analyses assume that 100% of the mortgage payments are invested afterwards, but this is an unrealistic assessment of human nature. “Most people, including myself, won’t invest all of that extra money when the mortgage is paid off,” he says.

With many Canadians having most of their net worth in their home, increased diversification is another reason to maximize the RRSP ahead of paying down the mortgage. Liquidity, or easy access to funds, is also a factor in favour of RRSPs.

Talbot Stevens, financial speaker and author of Financial Freedom Without Sacrifice, is the president of a financial education firm providing employer-sponsored workshops, and has started a petition to make basic financial education a mandatory part of the school system.

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Talbot Stevens is a financial educator, industry consultant, and author of "Financial Freedom Without Sacrifice" and "Dispelling the Myths of Borrowing to Invest". For other story ideas, visit the Free Resources menu of For more information, contact Judy Culford, Communications Director for Talbot Stevens, by calling (519) 663-2252, or emailing