Canadian Tax and
Financial Information
RRSP vs Mortgage Calculator

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Pay Down Debt or Contribute to RRSPs?  
Although we use the term mortgage, you can use this calculator for any type of loan.
All amounts in yellow input cells can be changed as desired.
Use the tab key or your mouse to move between input cells.
Amounts are recalculated automatically when you tab out of the cell, click elsewhere, or click the Calculate button.
Input data into the yellow input fields, tab to the next field.
Choose province or territory from drop-down list
Your estimated taxable income per year
Your current mortgage:
Current mortgage balance
Mortgage interest rate
What is the frequency of your mortgage payments?
Is your mortgage compounded monthly, or semi-annually? (check your mtg documents)
     - Canadian mortgages are normally compounded semi-annually
Effective annual rate (equivalent rate with annual compounding)
Years left to pay on the mortgage
Number of mortgage payments remaining
Amount of final payment on the mortgage
Extra payments on mortgage or on RRSP:
If you contribute $1,000 to an RRSP and are in a 32% tax bracket, your tax savings is $320, for a net cost to you of $680.  If you wish to pay down your debt and have the same after-tax disposable income, you would pay $680.  For this reason, we use the before-tax amount for RRSP contributions, and the after-tax amount for mortgage payments.  
Marginal tax rate
Extra contribution to your RRSP at the time of each mortgage payment
Extra amount to pay on the mortgage (after-tax amount)
New mortgage payment amount
Years left to pay on the mortgage with higher payments, rounded to even months  
Number of mortgage payments remaining with higher mortgage payment amount
Amount of final payment
Once the mortgage is paid off, contributions are then made to RRSPs for 
Calculation of RRSP contribution amounts at revised marginal tax rate once mortgage is paid off early
Once the mortgage is paid off, you will contribute to an RRSP.  This increases your RRSP contributions, and may also put you into a lower tax bracket, with some of the tax savings at a lower tax rate.  The calculator uses the revised tax savings and the after-tax value of the mortgage payment to calculate the RRSP contribution for Case 2 below.  
Example, using original marginal tax rate of 32%, and revised marginal tax rate of 25%:
  Before-tax amount required to contribute an after-tax amount of $1,000 at 32% marginal tax rate = $1,000 / (1-.32)  = 1,000 / .68 = $1,470.59  
  Before-tax amount required to contribute an after-tax amount of $1,000 at 25% marginal tax rate = $1,000 / (1-.25) = 1,000 / .75 = $1,333.33  
Your RRSP contribution amount using revised marginal tax rate:
To determine your before-tax contributions after the mortgage is paid off, your marginal tax rate is recalculated based on the increased total annual RRSP contributions.  This often results in a lower marginal tax rate.  This new marginal tax rate is used to calculate your RRSP contribution amounts in Case 2 of "B" below.  
Your revised marginal tax rate, used to calculate RRSP contributions for Case 2 in "B"
Calculation of monthly RRSP contribution except for the 1st and the last contributions:
Net cost of each RRSP contribution after tax (same as mortgage payment)
Add back tax savings with higher RRSP contributions
Amount of 1st contribution, at same time as last mortgage payment
Amount of last contribution, based on original final mtg pmt + extra pmt
Average annual contributions to RRSP once mortgage is paid off
If the average annual contribution exceeds the annual contribution limit (2016 is 25,370, 2017 $26,010, 2018 $26,230, future year limits are indexed), and you do not have sufficient contribution room carried forward, then this analysis will NOT provide accurate results.  This analysis doesn't take into account the fact that an average annual contribution could actually be divided between 2 tax years, which could have quite different results if the amounts are large.  
          Input 2 more rates, to compare values
RRSP Rate of Return - 1st column is mortgage rate ->
Case 1
Total contributions
Less tax savings @ marginal tax rate of 
Net out-of pocket cost
Add total paid on mortgage
Total out-of-pocket cost RRSPs + Mortgage
Value in RRSPs at the end of the original mortgage amortization period 
Case 2
Pay the extra amount on the mortgage, and when the mortgage is paid off, contribute the mortgage pmts to your RRSP.
Less tax savings @ marginal tax rate of 
Net out-of-pocket cost
Add total paid on mortgage
Total out-of-pocket cost RRSPs + Mortgage
Value in RRSPs at the end of the original mortgage amortization period 
Case 1 is better (worse if negative) than Case 2 by
The values in RRSPs at the end of the original amortization period will be the same for Case 1 and Case 2 if:
- the effective annual rate of the mortgage is the same as the effective annual return on the RRSP, and
- the marginal tax rate used for calculating the RRSP payments is the same in both Case 1 and Case 2.
However, the marginal tax rate will sometimes be lower in Case 2 due to the higher RRSP contributions once the mortgage is paid off early.  For this reason, the values for Case 1 may be higher than the values for Case 2 even when the effective interest rates are equal.
Tip:  Unless your RRSP returns are going to be consistently higher than the rate on your mortgage, it is probably better to pay down your mortgage.
Tax rates used are 2017 rates known as of May 16, 2017, including 2017 budget revisions.
The calculations are for a single person with only the basic amount tax credit.  Taxes include basic tax and surtax.
The above calculations are estimates for planning purposes, and assume constant interest rates throughout the analysis.  It is assumed that there are no changes in the tax rates, and no change in the taxpayer's income throughout the analysis.
We strive for accuracy, but cannot guarantee it.

Make sure you read our articles:
          Are you better off to  pay down your mortgage, or contribute to an RRSP?
          Save and Invest

To calculate the return on your RRSPs or other investments, use our Investment Return Calculator.

Questions or comments on the RRSP vs mortgage calculator? 
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Revised: September 19, 2017



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