Overpay Your Mortgage or Invest in 2026? The Math
You have an extra $500 a month. Your mortgage charges 4.6%; the market might return 6%. The textbook answer is "invest" — but the real math is closer than it looks. Let's run both paths on a $500,000 mortgage at 4.6%.
How we check the numbers: every figure on this page is calculated from official CRA, Statistics Canada or Bank of Canada data and cross-checked with the free calculators on this site — run them yourself to verify.
The baseline: your mortgage as it stands
25-year amortization, 4.6% nominal with Canadian semi-annual compounding. Every extra dollar you pay goes straight against principal — and every dollar of principal you kill early stops accruing interest for the rest of the term.
Path A: put the $500 toward the mortgage
| Minimum payments | +$500/month | |
|---|---|---|
| Monthly payment | $2,795.23 | $3,295.23 |
| Payoff time | 25.0 years | 18.9 years |
| Total interest | $338,568.69 | $246,338.64 |
| Interest saved | — | $92,230.05 |
| Time saved | — | 6.1 years |
After 10 years, the difference is stark: with minimum payments you'd still owe $364,016.28; with the extra $500 you'd owe $288,189.84 — a $75,826.44 smaller debt, guaranteed, with zero market risk.
Path B: invest the $500 instead
Investing $500/month for 10 years at an illustrative 6% average annual return:
6% is illustrative, not a forecast — actual returns vary and can be negative. After-tax growth depends on the account: $0 tax in a TFSA, full marginal rate on interest in a non-registered account, 50% inclusion on capital gains.
Head-to-head after 10 years
| Prepay mortgage | Invest at 6% | |
|---|---|---|
| 10-year benefit | $75,826 less debt (guaranteed) | $81,940 portfolio ($60k was yours) |
| True gain | $75,826 of destroyed interest | $21,940 growth (pre-tax, at risk) |
| Risk | Zero — 4.6% guaranteed | Market risk; 6% not guaranteed |
| Liquidity | Locked in home equity | Accessible (TFSA/non-registered) |
On pure expected dollars, investing can win — if you actually earn 6%+. But the mortgage prepayment's return is guaranteed, tax-free, and risk-free, which is a combination no investment offers. And remember the after-tax hurdle: at a 29.65% marginal rate, your investments need ~6.54% pre-tax just to tie the prepayment.
When each path wins
- Prepay the mortgage if: your rate is 4.5%+, you value certainty, you're close to retirement, or your TFSA/RRSP room is already full and the alternative is taxable investing.
- Invest if: your mortgage rate is low (under ~3.5%), you have unused TFSA/RRSP room, you have decades ahead of you, and you can tolerate market swings without panic-selling.
- Split it if: you're torn — $250 to each. You'll capture most of the guaranteed return while keeping liquidity and upside. Indecision resolved is better than optimization paralysis.
- Neither, if: you carry credit card or other high-interest debt. Kill anything above ~7% before doing either of these.
Before you prepay: check your privileges
Most Canadian mortgages let you prepay 15–20% of the original balance per year without penalty, plus increase your regular payment by a similar amount. On a $500,000 mortgage, that's $75,000–$100,000 of penalty-free prepayment room annually — far more than our $6,000/year example. But exceed the limit and you'll face the greater of three months' interest or the interest rate differential (IRD), which can run into five figures on fixed rates. Read your mortgage contract's prepayment clause before sending extra money.
Frequently asked questions
Will my lender penalize extra payments?
Most Canadian mortgages allow annual prepayments of 15–20% of the original balance without penalty, plus payment increases. Check your specific prepayment privileges — exceeding them can trigger IRD or 3-months'-interest penalties.
Should I prepay or top up my FHSA/RRSP?
If you have unused registered room and expect to be in a similar or lower bracket later, the tax deduction from an RRSP or FHSA contribution often beats both options on an after-tax basis. See the TFSA vs RRSP breakdown.
Does this change if rates fall?
Yes — the math flips with rates. At a 3% mortgage rate, the guaranteed return of prepaying drops and investing becomes more attractive. Re-run the comparison at renewal with the mortgage calculator.
How much prepayment room do I actually have?
Most Canadian mortgages let you prepay 15–20% of the original balance per year without penalty, plus increase your regular payment by a similar amount. On a $500,000 mortgage that is $75,000–$100,000 of penalty-free prepayment room a year — far more than the $6,000-a-year example in this article, so penalty limits are rarely the binding constraint.
When should I invest instead of prepaying?
Investing wins the comparison when your mortgage rate is low (under about 3.5%), you have unused TFSA or RRSP room, and you have decades ahead of you to ride out market swings. Prepaying wins when your rate is 4.5% or higher, you value certainty, or you are close to retirement.
Sources
Run your own numbers
Model prepayments on your own balance with the mortgage calculator, or project the investing side with the TFSA growth calculator. Also see the mortgage renewal guide for late 2026.
Educational content only — not financial advice. Figures are estimates; confirm your own situation with the CRA or a licensed financial advisor. See our Disclaimer.