Mortgage Payoff vs. Investing: What Makes Sense in Ontario Right Now?

The Question Every London, Ontario Homeowner Asks

It is one of the most common questions I hear from clients across London, Ontario: "I have extra cash flow each month. Should I put it against my mortgage or invest it?"

The answer depends on math, taxes, risk tolerance, and your personal financial situation. But the math has shifted meaningfully in the last few years, and what made sense in 2020 when mortgage rates were under 2 percent does not necessarily make sense in 2026 with rates in the 4 to 6 percent range.

Here is how to think through this decision clearly, with the Ontario tax picture front and centre.

The Basic Math: Interest Rate vs. Investment Return

At its simplest, this decision is a comparison between two numbers.

Your mortgage interest rate is a guaranteed cost. If your mortgage rate is 5.5 percent, every extra dollar you put against the principal saves you 5.5 percent per year in interest for the remaining life of the mortgage. That savings is guaranteed, risk-free, and tax-free (because you do not pay tax on money you never owe).

Your expected investment return is uncertain. A diversified portfolio of equities and bonds has historically returned 6 to 8 percent annually over long periods, but returns in any given year can range from negative 20 percent to positive 30 percent. You also pay tax on investment returns earned outside of registered accounts.

If your mortgage rate is 5.5 percent and your expected investment return is 7 percent, the spread is only 1.5 percentage points, and that is before taxes on the investment gains. On an after-tax basis, investing may not come out ahead at all.

Compare that to 2020 or 2021, when mortgage rates were 1.5 to 2.5 percent. The spread between mortgage cost and expected investment return was 4 to 6 percentage points, making investing the clear winner for most people. That environment is gone, at least for now.

The Ontario Mortgage Rate Environment in 2026

As of early 2026, five-year fixed mortgage rates in Ontario are generally ranging from 4.0 to 5.5 percent, depending on the lender and your financial profile. Variable rates, after the Bank of Canada's rate adjustments, are in a similar range with continued uncertainty about where they head next.

For London, Ontario homeowners specifically, the median home price has moderated from its 2022 peak but remains substantially higher than pre-pandemic levels. Many homeowners who purchased or renewed in the last two to three years are carrying larger mortgages at higher rates than they originally planned for. This makes the mortgage payoff option more attractive than it was during the low-rate era.

If you are coming up on a mortgage renewal, the rate you lock in will directly affect this calculation. Run the numbers with your actual rate, not a hypothetical one.

The RRSP Advantage: Why Investing Can Still Win

Here is where the Ontario tax system creates an opportunity that tips the scales back toward investing, even at current mortgage rates.

When you contribute to an RRSP, you receive a tax deduction at your marginal rate. In Ontario, combined federal and provincial marginal rates are approximately:

• 20.05 percent on income up to $55,867
• 29.65 percent on income from $55,867 to $111,733
• 31.48 percent on income from $111,733 to $150,000
• 33.89 percent on income from $150,000 to $220,000
• Higher rates above $220,000

If you earn $95,000 and contribute $10,000 to your RRSP, you save roughly $2,965 in taxes (at the 29.65 percent marginal rate). That is $2,965 of real cash back in your pocket at tax time.

Now here is the key move: take that $2,965 tax refund and apply it directly to your mortgage as a lump-sum payment. You are effectively getting the investment growth inside the RRSP and the mortgage reduction from the tax refund. You do not have to choose one or the other. The RRSP contribution generates the refund, and the refund pays down the mortgage.

Over 20 years, this combined strategy typically outperforms either pure mortgage payoff or pure investing. The RRSP grows tax-deferred while the mortgage gets paid down faster.

This works best when your marginal tax rate is 29.65 percent or higher. At the lowest bracket (20.05 percent), the refund is smaller and the advantage shrinks. Talk to a tax planning professional to model this with your specific numbers.

TFSA Room: Do Not Leave It on the Table

The TFSA comparison is more straightforward because there is no tax deduction on contributions. You are comparing the after-tax investment return inside the TFSA against your mortgage interest rate.

Inside a TFSA, investment growth is completely tax-free. If your TFSA earns 7 percent annually, you keep the full 7 percent. Compare that to your mortgage rate of, say, 5.5 percent. The TFSA wins by 1.5 percentage points, but that margin is thin and depends entirely on achieving that 7 percent return consistently.

The advantage of the TFSA route is flexibility. Money in a TFSA can be withdrawn at any time for any purpose without tax consequences. Extra payments on your mortgage reduce your balance, but you cannot easily get that money back unless you have a re-advanceable mortgage or home equity line of credit.

If you do not have your TFSA fully funded, it generally makes sense to maximize your TFSA contributions first, invest for growth, and then direct any remaining cash flow to the mortgage. The tax-free compounding inside a TFSA over 15 to 25 years is difficult to replicate with any other strategy.

For a deeper look at how registered accounts fit into your overall strategy, explore our investment management approach.

Risk Tolerance: The Guaranteed Return Argument

Paying down your mortgage is the only guaranteed return available to you. If your mortgage rate is 5.5 percent, every dollar of extra payment earns you a risk-free, after-tax 5.5 percent return. No investment can promise that.

For people who lose sleep when markets drop, who check their portfolio daily during volatile periods, or who are within five to ten years of retirement, the psychological value of a paid-off home is enormous. You cannot put a dollar figure on the peace of mind that comes from owning your London, Ontario home outright.

The investment side of the argument relies on averages over long periods. Yes, equities have historically returned 7 to 10 percent over 20-plus year horizons. But those averages include years like 2008 (down 37 percent) and 2022 (down 18 percent for a balanced portfolio). If you invest instead of paying down your mortgage and the market drops 25 percent in year three, your mortgage balance is exactly the same, and your investment portfolio is significantly smaller. You need the discipline and time horizon to ride out those periods.

If your time horizon is long, say 15 years or more, the odds favour investing. If your time horizon is short, say under 10 years, the certainty of mortgage payoff becomes more compelling.

Tax Considerations: Canada Is Not the United States

Mortgage interest is not tax-deductible in Canada. In the United States, homeowners deduct mortgage interest, reducing the effective cost. In Ontario, your mortgage interest is a pure after-tax cost with no deduction or credit. Be cautious about applying US-based personal finance advice to your Ontario situation.

When comparing a 5.5 percent mortgage rate to a 7 percent investment return, you need after-tax returns. In a non-registered account, after-tax returns might be closer to 5 to 5.5 percent, putting you at breakeven with mortgage payoff. Investments inside an RRSP or TFSA avoid this problem because the growth is tax-sheltered, another reason to prioritize registered accounts before making extra mortgage payments.

The Smith Manoeuvre: A Brief Note

The Smith Manoeuvre effectively makes your mortgage interest tax-deductible by converting your non-deductible mortgage into a deductible investment loan using a re-advanceable mortgage. It is legitimate under Canadian tax law but complex, requires discipline, and carries risk.

It can make sense for higher-income Ontario households with a long time horizon and strong risk tolerance. But it is not a do-it-yourself project. If this interests you, work with a financial planner who understands both investment management and tax planning.

The Emotional vs. Mathematical Decision

The mathematically optimal answer and the right answer for you may not be the same thing. If carrying a mortgage into retirement causes you genuine stress, the emotional cost may outweigh the mathematical advantage of investing.

For many London, Ontario families I work with, the goal is not to maximize every last dollar. It is to build a financial life that supports how they want to live. Neither aggressive investing nor rapid payoff is wrong. The wrong answer is the one you cannot stick with.

A Framework for Your Decision

Lean toward paying off the mortgage faster when:

• Your mortgage rate is above 5 percent and you expect rates to stay elevated
• You are within 10 years of retirement and want to eliminate the payment before you stop working
• You are risk-averse and market volatility causes you genuine discomfort
• Your RRSP and TFSA are already well-funded relative to your retirement goals
• You do not have a pension and your mortgage-free home is a critical part of your retirement security

Lean toward investing when:

• Your mortgage rate is below 4 percent (locked in from a previous term)
• You have 15 or more years until retirement and can ride out market cycles
• You have unused RRSP room and your marginal tax rate is 29.65 percent or higher, making the tax refund substantial
• Your TFSA is not yet maximized and you are missing years of tax-free compounding
• You have an employer match on group RRSP or DPSP contributions that you are not capturing (this is free money and always comes first)

Lean toward the hybrid approach when:

• You are somewhere in the middle on most of these factors
• You want the psychological satisfaction of mortgage progress plus the long-term growth of investing

The Hybrid Approach: Doing Both Strategically

For most people I work with in London, Ontario, the best answer is a deliberate combination: maximize your RRSP contribution (especially if your marginal rate exceeds 29 percent), direct the tax refund to a lump-sum mortgage payment each year, and contribute to your TFSA with remaining cash flow.

This captures the RRSP tax deduction, accelerates mortgage payoff through the refund, and builds tax-free wealth in the TFSA. The exact split depends on your income, mortgage rate, and time horizon.

London, Ontario Housing Context

London's housing market is more affordable than the Greater Toronto Area but still represents the largest single asset for most families. Many London homeowners who bought during the 2020 to 2022 price run are carrying mortgages that feel heavier than expected after renewing at higher rates.

If home equity is an outsized portion of your net worth, that is a concentration risk: investing provides balance. For business owners in London dealing with both personal mortgages and corporate financial planning, the calculus includes additional factors like the corporate tax rate on investment income. A coordinated approach with retirement planning ensures nothing falls through the cracks.

Make This Decision With Real Numbers

The mortgage-versus-investing decision is too important to base on rules of thumb or gut feeling. It deserves a proper analysis using your actual mortgage rate, your actual marginal tax rate, your actual time horizon, and realistic (not optimistic) return assumptions.

As a financial planner in London, Ontario, I build these comparisons for clients regularly. We model both scenarios, and the hybrid approach, year by year to show exactly where you come out. The right answer becomes clear when you can see the numbers side by side.

Book a free 15-minute call and we will run the analysis together. Bring your mortgage statement, your latest Notice of Assessment, and your investment account balances. In one conversation, we can map out the strategy that makes the most sense for where you are right now.