A fantastic question and like most in the world of finances, the answer won’t be the same for everyone. An old friend of my parents once told me, “keep your mortgage and your RRSP separate, don’t focus on one or the other but rather on both”. Very good advice but not necessarily for everyone or every economic climate. At the time, GIC’s were paying about 10% and mortgage rates were in the area of 6-7% over five years. Makes sense that if you can get a guaranteed return that exceeds your mortgage rate by 3-4% that you max out your RRSP contribution, take the tax deduction and the return on your investment and run. However, fast forward to 2010 when GIC’s are paying 2-3% and mortgage rates are around 4% over five years. The same approach doesn’t seem so appealing anymore. Aversion to investment risk and debt will be the determining of which approach is best.
There was an excellent article in the Toronto Star last week that discusses this topic in great detail. I strongly encourage taking a few minutes to read it to help you decide which approach is best for you http://www.thestar.com/business/personalfinance/article/844358--paying-down-debt-makes-sense
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