A raise. A new allowance. A bonus. An inheritance. When extra money shows up, it’s usually welcome, but it can also bring a surprisingly tricky question: Should I put this toward my mortgage, or should I invest it?
You’ll hear strong opinions on both sides. Some people swear by becoming mortgage-free as fast as possible. Others argue you should prioritize investing outside your home. The truth is, there’s no single right answer. The better question is: what makes the most sense for you, right now?
Let’s walk through how to think about it.
The case for paying down your mortgage
Putting extra money toward your mortgage does a few important things.
First, it reduces the total interest you’ll pay over time. Most mortgage contracts allow you to make extra lump-sum payments, and even a small additional payment can shave years off your mortgage and save thousands of dollars in interest.
Second, it offers certainty in a way few investments ever can. Even though a mortgage is technically a debt, paying it down behaves like an investment with a guaranteed return. Every extra dollar you put toward your mortgage earns you a return equal to your mortgage interest rate by permanently eliminating future interest.
Third, many CAF families see a psychological benefit as well. Not just because they’re carrying less debt, but because they feel more secure. As home equity grows, there’s comfort in knowing you’ve built a financial cushion inside your home that can potentially be accessed if life throws you a curveball.
That said, this flexibility isn’t immediate. Money paid into your mortgage is not very liquid, and accessing it usually requires refinancing or borrowing against your home. It’s a source of long-term security, not short-term cash.
The case for investing
While mortgage payments steadily reduce a known balance, investments are designed to grow beyond what you put in. That growth is what helps bring future goals like retirement, education, or flexibility later in life within reach.
Long-term investment returns have historically outpaced mortgage interest costs. At SISIP, we typically use a 6% long-term portfolio growth assumption, while current mortgage rates are closer to 4% for many borrowers. That difference helps explain why investing extra money can make sense over the long term.
Investing can also improve flexibility. Unlike mortgage payments, money invested in accounts like a TFSA can often be accessed if needed, without penalties or tax consequences on withdrawals.
Another advantage is balance. If all your extra money goes into your home, a large portion of your net worth may be tied up in a single asset. Investing can help spread risk and support future goals that aren’t tied to housing. That’s called diversification, and it’s a cornerstone of sound financial management.
Of course, investing involves uncertainty. Markets move and returns aren’t guaranteed, which is why it’s important to invest shorter-term and longer-term money differently. You wouldn’t want to be forced to make a withdrawal during a market downturn.
What about doing both?
For many people, the real answer isn’t mortgage or investing, it’s some of each.
Splitting extra money between paying down your mortgage and investing can provide a blend of stability and growth. It allows you to reduce debt while still building momentum toward future goals.
Consider this: You could contribute to your RRSP, make some smart long-term investments, then take the tax refund generated by your contribution and use it to pay down your mortgage.
This type of approach can be especially useful for CAF members juggling competing priorities, such as housing, family, relocations, retirement savings, and the unknowns that come with military life.
How to decide what’s right for you
Here are a few questions that can help guide your decision:
- How secure does your cash flow feel right now?
- Are you comfortable with market ups and downs, or do they cause stress?
- How close are your major goals, like a move, education costs, or retirement?
- Do you have an emergency fund in place?
Finally, you might want to compare your mortgage interest rate to your expected investment returns, but not without asking at least one more question: Would you rather have guaranteed interest savings or potential investment growth?
These questions will have different answers for each individual, but together, they help paint a clearer picture. If you’re unsure how to weigh these tradeoffs, a SISIP advisor can help you look at the full picture, understand your options, and make a choice that supports your long-term confidence and security.
You don’t have to guess, and you don’t have to follow someone else’s rules. The right decision is the one that works for you.
