Pay-down Your Mortgage or Top-up Your TFSA

The question of reducing debt or contributing to savings will continue to be debated for as long as people plan to retire in Canada.

Of course opting for both: reducing debt and increasing savings is the ideal.  As for which is better, however, really depends on the individuals involved, their goals and feelings, and their unique financial situations.

If you find you just can’t decide whether to save or pay off, start by contributing to a TFSA; those deposits can easily be withdrawn and applied to your mortgage in the future.

What You Need to Know

Mortgages and TFSAs both deal with after-tax dollars.  Any additional payments made against your mortgage or contributed to your TFSA will be after you have paid income tax.  TFSA contributions will not reduce your taxable income; the capital gain from the home (assuming it’s your principal residence) and any growth and withdrawals from your TFSA will not be subject to income tax.  There is no tax implication for either option.

To simplify the matter, the question becomes “can I earn more inside my TFSA than what I pay in mortgage interest?”  If your mortgage interest is 4% per annum, paying down your mortgage by $10,000 will save you $400 in interest charges each year.  Placing the same $10,000 in your TFSA earning 4% per annum will earn you $400 the first year totaling to $10,400, which will become $10,816 at the end of year two with compound interest.

For some people, becoming debt-free as soon as possible buys peace of mind and freedom; for others, a nest-egg and the security and flexibility it provides is more important.

Bottom Line

If you find yourself torn between building a nest-egg or paying off your mortgage and would like a personal consultation, please contact Winnie at to set up an appointment with Kari where we discuss your goals, review the numbers and find the perfect solution for you.

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This information is designed to educate and inform you of financial strategies and products currently available. As each individual’s circumstances differ, it is important to review the suitability of these concepts for your particular needs with a Qualified Financial Advisor.