Pay down the mortgage or invest?

The arithmetic reduces to one comparison: your mortgage rate (a guaranteed, after-tax, risk-free return) versus your expected after-tax investment return (not guaranteed). At today's ~4.85% market 5-year fixed, prepaying "earns" 4.85% with zero risk — beating GICs and bonds outright; investing in equities at a hoped-for 6–7% wins on expectation but can lose money for years at a time. The calculator above runs your actual numbers; the honest answer for many households is the boring one — some of both.

Because Canadian principal-residence mortgage interest is not tax-deductible. CRA allows interest deductions only when borrowed money is used to earn income (line 22100; Folio S3-F6-C1) — a mortgage on the home you live in fails that purpose test. US articles assume a deduction that softens the mortgage rate; here, your 4.85% is a full, pre-and-post-tax 4.85%, which makes prepayment a genuinely stronger play in Canada than American content suggests. (The exception that proves the rule — restructuring borrowing so it does earn income — is the Smith Manoeuvre, a separate and sharper-edged topic.)

Materially. Inside a TFSA, the comparison is clean: expected return vs mortgage rate. In a taxable account, returns carry annual tax drag — at a 35% marginal rate the calculator approximates a 6% return as ~4.95% after tax, which barely clears a 4.85% mortgage; the breakeven return it reports rises accordingly. The RRSP case depends on whether you'd otherwise lose the contribution room and refund — treated here as tax-sheltered growth, with the refund as a bonus the simple model doesn't count. Rule of thumb the math supports: with TFSA room available, investing competes hard; without it, the mortgage gets much harder to beat.

Closed mortgages cap penalty-free prepayments — and the caps differ by lender, from their own pages: TD allows 15% of the original principal per calendar year, Scotiabank and CIBC 10–20% depending on product, RBC 10% once per 12 months plus payment-doubling. Exceed the privilege and FCAC’s rule of thumb applies: a penalty of the higher of three months’ interest or the interest-rate differential. For normal extra-payment amounts the privileges are rarely binding — they matter for inheritance-sized lump sums.

The rates are the start, not the whole story. Prepayment’s return is certain; equities’ is an average across outcomes that includes 2008s and 2022s — and if your payoff horizon is short, a bad sequence can leave the invested route behind for a decade (see sequence risk). Liquidity cuts the other way: money in your walls is hard to get back out (a HELOC application, not an ATM), while a TFSA portfolio is spendable Tuesday. And the behavioural truth practitioners admit: the forced discipline of a dead mortgage is worth something no spreadsheet prices. The full guide weighs all three.

Rate context verified June 11, 2026 at primary sources: market 5-year fixed specials of 4.84%–4.89% (TD and RBC's own rate pages), the Bank of Canada's posted 5-year conventional benchmark at 6.09% (series V80691335), and the policy rate at 2.25%. Your own mortgage rate is the number that matters — it's on your statement. The stress test (OSFI: greater of contract + 2% or 5.25%) affects what you can borrow, not this decision.