As your mortgage becomes more manageable and your income grows, you may find yourself with extra money to put toward your financial future. Whether it comes from a raise, bonus, tax refund, or inheritance, you may be asking yourself: should you use it to pay down your mortgage or invest it elsewhere?
Both options can strengthen your financial position, but they do so in different ways. Here’s how to evaluate both approaches and decide what makes sense for your situation.
Understanding Your Options
When you have additional funds available, you can make extra mortgage payments to reduce your balance faster or invest the money in a registered or non-registered account.
Both options can be effective, depending on the situation. Paying down your mortgage provides a predictable financial benefit through interest savings. Investing, on the other hand, offers greater growth potential; however, returns are not guaranteed.
The following comparison provides a quick look at the key differences.
| Pay Down Your Mortgage | Invest Your Extra Funds | |
| Main Benefit | Save interest and build home equity faster | Potentially grow your wealth over the long term |
| Risk Level | Lower Your interest savings are predictable |
Higher Returns depend on market performance |
| Access to Your Money | Funds are less accessible once applied to your mortgage | Funds may be more accessible, depending on the account and investment |
| May Be a Good Fit If… | You value certainty, want to reduce debt or are approaching retirement | You have a longer investment horizon and are comfortable with market risk |
| Things to Consider | Directing all your extra money to your mortgage may leave less available for other goals | Investment returns are not guaranteed and values can fluctuate |
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Pay Down Your Mortgage
Main Benefit
Risk Level
Access to Your Money
May Be a Good Fit If…
Things to Consider |
Invest Your Extra Funds
Main Benefit
Risk Level
Access to Your Money
May Be a Good Fit If…
Things to Consider |
Option 1: Pay Down Your Mortgage Faster
Making additional mortgage payments reduces your principal balance immediately. Because you are paying interest on a smaller balance, you can reduce your total borrowing costs and become mortgage-free sooner.
This may appeal to you if you want to reduce debt before retirement or create more room in your budget once your mortgage is paid off.
However, there are trade-offs to consider. Money applied to your mortgage is not as readily accessible as cash or certain investments. Putting all your available funds toward your mortgage could also leave less for retirement savings, education costs, or other financial priorities.
Option 2: Invest Your Extra Funds
Investing allows your money to work toward future goals such as retirement, education savings, or building long-term wealth. Depending on market performance and your investment strategy, your returns could outpace your mortgage interest over time.
But unlike mortgage interest savings, investment returns aren’t guaranteed. Markets can decline, and investments with greater growth potential generally carry greater risk. You will also continue paying interest on the portion of your mortgage you could have otherwise reduced.
Is It Better to Pay Off Your Mortgage Early or Invest?
There is no single answer that applies to every homeowner. Here are a few factors to consider before deciding where your extra money might go.
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1. Your Mortgage Interest Rate Start by comparing your mortgage rate with the return you could reasonably expect from investing. For example:
Rather than trying to predict where rates or the markets will go, start with the rate you have now. If your rate is fixed, it will hold for the length of your term. If it’s variable, it will move with the Bank of Canada's policy rate. |
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2. Your Comfort Level With Risk Some homeowners sleep better knowing they are reducing debt. Others are comfortable with market fluctuations in exchange for potential long-term gains. Consider how you would respond if your investments declined in value:
On the other hand, does carrying a larger mortgage balance cause you stress, even when the payments remain affordable? Your comfort with that trade-off can help point you toward the right approach. |
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3. Your Financial Goals What do you want your extra money to accomplish? Paying down your mortgage may be more appealing if you want to become mortgage-free sooner or reduce your financial obligations before you retire. Investing may be a stronger fit if you are building retirement savings, saving for your children’s education or working toward another long-term goal. Your timeline also matters. Someone approaching retirement may value reducing debt, while someone with several decades to invest may have more time to recover – or benefit – from market fluctuations. |
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4. Your Emergency Savings Before committing extra money to either option, determine whether you have enough ready savings to manage an unexpected expense. The Financial Consumer Agency of Canada suggests setting aside three to six months of expenses. An emergency fund can help you cover an unexpected cost without relying on higher-interest credit or disrupting your longer-term plans. |
Quick Quiz: Should You Pay Off Your Mortgage Early or Invest?
There’s no one-size-fits-all answer, but these questions can help you think about which strategy may better align with your goals. Keep track of whether you select mostly A's or B's.
1. What would give you the greatest sense of financial progress?
- Seeing my mortgage balance decrease.
- Seeing my investments grow over time.
2. Which statement sounds more like you?
- I prefer predictable financial outcomes.
- I’m comfortable with some uncertainty if there’s greater long-term growth potential.
3. Which goal is your highest priority over the next 10 years?
- Becoming mortgage-free or significantly reducing my debt.
- Building retirement savings or growing my investments.
4. How close are you to retirement?
- Less than 10 years away.
- More than 10 years away.
5. Which statement best describes your current financial situation?
- I’m focused on simplifying my finances and reducing monthly obligations.
- I have time to let my investments grow and can manage market fluctuations.
Your Results
Mostly A's: Paying down your mortgage may align more closely with your financial goals and comfort level.
Mostly B's: Investing may be a good fit if you have a long time horizon and are comfortable with market risk.
A Mix of A’s and B’s: You don’t necessarily have to choose one strategy over the other. Many homeowners find that making additional mortgage payments while continuing to invest helps them make progress toward multiple financial goals at once.
This quiz is intended as a starting point. A financial professional can help you determine the approach that best fits your circumstances.
Why a Balanced Approach May Make Sense
Paying your mortgage or investing does not need to be an all-or-nothing decision. For example, you could increase your mortgage payments while continuing to make regular investment contributions. You could also make occasional lump-sum mortgage payments when extra funds become available.
Explore Your Mortgage Prepayment Options
If you decide that paying down your mortgage aligns with your goals, it is important to understand the prepayment options available to you. Depending on your mortgage terms, you may be able to:
- Increase your regular payment amount
- Make lump-sum prepayments
Even a small increase to your payment amount or frequency can meaningfully reduce the interest paid over the life of your mortgage. Read these 5 Tips to Pay Off Your Mortgage Faster for additional strategies.
Want to see the impact for yourself? Use MCAP's Mortgage Payment Calculator to explore different payment scenarios and understand how additional payments could affect your mortgage.
Making the Decision That’s Right For You
If you have been wondering, Should I pay off my mortgage early? or Is it better to pay off my mortgage early or invest? The answer comes down to your goals, timeline and comfort with risk.
For many homeowners, the answer is a combination of both. By understanding the trade-offs and reviewing your mortgage prepayment options, you can choose the approach that supports your priorities now and in the years to come.
