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TFSA, RRSP or Mortgage: Where Should Your Money Go?

TFSA, RRSP or Mortgage: Where Should Your Money Go?

What would you do if you suddenly won the lottery? Would you save the money? Would you spend it on the things you desire?

The most basic option is to spend it, pay your debt, give the money away or invest it. However, there are even more ways in which you can use the money available to you – you can pay down a mortgage, contribute to a retirement savings plan or a tax-free savings account.

Mortgage or RRSP

People often wonder if they need to pay their mortgage down or increase their RRSP savings. The method commonly used is to increase the RRSP, which promotes some tax savings, usually in the form of a tax refund. This refund can then be applied to your mortgage. It’s a win-win.

Paying the mortgage down will ensure savings while there is no guarantee of a favorable return from an RRSP. It’s also wise to pay off the mortgage before your children are ready for college as it’ll be easier to pay university fees. You should always pay high-interest debt and credit cards off before you contribute money to an RRSP.


The marginal tax rate (MTR) today and the possible MTR rate you may get in retirement is what you need to consider when deciding between a TFSA or an RRSP. If the MTR is higher now than you feel it’ll be in retirement, it’s time to contribute to the RRSP. This will allow you to benefit from the tax savings at the high rate now and pay at a reduced rate later on when you need to make withdrawals.

However, if the MTR is low now and is projected to increase during retirement, it’ll be more beneficial to go with the TFSA. You won’t get the tax deduction now, but you could save more in taxes during retirement.

Mortgage or TFSA

When it comes to the option of supplementing your TFSA or paying the mortgage down, they are quite similar, as they both offer a tax-free return rate. If you have a 4% mortgage rate, then paying the mortgage down means getting a 4% guaranteed return rate after taxes. If you attain a larger rate of return in the TFSA than the mortgage interest, then go with the TFSA option.

There are other considerations to take into account. If your mortgage is fully paid off, are you likely to invest the same payments you were submitting to the mortgage? If not, then paying the mortgage down first doesn’t make a lot of sense.