One thing most people don’t consider when comparing ‘rates of return’ is that the approximation for stock market returns are calculated annually, mortgages are compounded semi-annually, so its more accurate to compare dollars spent paying interest vs. dollars of return.

The investment vehicle will also obviously play a role. If you participate in DRIPs, depending on the frequency of reinvestment/distributions, the $$$ at the end of the year will differ also.

Interest rates in Canada are likely rising and as Gene pointed out mortgage interest is paid in After-Tax dollars.

One counter argument is that many great dividend stocks are less ‘expensive’ now and one could secure a lifetime of dividends with careful stock selection.

Still, once Risk is considered, the balance falls squarely on the shoulders of paying down one’s mortgage.

DAvid

Assuming all things equal, I would be inclined to pay down the mortgage first, especially in your example where the rate is 6%. This 6% interest is paid in after tax dollars. One would have to achieve maybe 8.5% before tax outside an RSP to match that 6%. That’s a decent risk-free return for early mortgage payments.

Perhaps a middle ground can be achieved by maxing out the RSP, but putting one’s entire tax refund towards paying the mortgage off early.

Non-financial factors come into it too. Some people are loathe to be in debt, so would go the extra mile to getting out of mortgage debt as quickly as possible.

She proves out which conditions are best for each alternative. There is also a link to a calculator on that page.