Personal Finance

TFSA vs Mortgage Paydown

  • Last Updated:
  • Feb 26th, 2010 9:00 pm
Jan 13, 2010
14 posts

TFSA vs Mortgage Paydown

Hi Everyone, I am looking for someone who may be able to help answer some questions for me. I have searched these topics on the internet and ever different accountant and advisor seem to have conflicting opinions.

This is my situation: I have approx $86,000 left on the mortgage at a rate of 3.5% and approx 9 years left to pay.

In 2009, we saved $10,000 and put it into 3 year progressive TFSA that averages about 2.5% per year.

This year again we have $10,000 that we could put into a TFSA or RRSP but we would really like to consider a mortgage paydown instead.

We feel if we get the mortgage done as soon as possible then we have lots of time to catch up on contributing to TFSA and RRSP since we are both in our mid to late 30's.

What strategy would you consider for our situation?

Thanks in advance;
3 replies
Deal Fanatic
Apr 15, 2004
5434 posts
Mortgage unless you know for certain your investment growth this year will be substantially better than in future years. Here's a simple example:

Scenario 1 - Contribute to TFSA:
Contribute $5000 for 2009. It grows to $7500. Withdraw the amount at the end of 2009. Contribution room for 2010 is $7500 (2009) and $5000 (2010) for a total of $12500.

Scenario 2 - Do not contribute to TFSA:
Contribution room for 2010 is $5000 (2009) and $5000 (2010) for a total of $10000.

The sooner you stick money into the TFSA, the more money is sheltered, since the earnings increase the amount that can be contributed if the funds are withdrawn. It's not a significant amount for savings accounts, but as an investment account, 50% return is a hefty increase in sheltered savings.
Deal Guru
Dec 31, 2005
13306 posts
Mortgage vs TFSA - Mortgage
Mortgage vs RRSP - Depends
Deal Expert
User avatar
Feb 9, 2003
17834 posts
Why on earth would you borrow money at 3.5% when you have money invested at 2.5%? Your 2009 plan is costing you $100/year with no benefit whatsoever. Unless you believe that your investment will return more then the mortgage interest, then you should pay down the mortgage. If you want to invest, chose something with a long term expected return higher than the mortgage rate.