October 28, 2026
For years, the retirement finish line looked simple: burn the mortgage, then stop working. As of October 2026, that plan just got more complicated.
On Oct. 28, 2026, the Bank of Canada raised its key lending rate by a quarter point to 2.5% — its first increase in more than three years. The bigger news, though, is that the BoC signals were clear: More hikes could follow.
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For Canadians in their late 50s and early 60s, that puts an old question back on the table: should every spare dollar go to the mortgage, or is there a smarter way to retire debt-free without running short of cash?
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A paid-off home brings peace of mind. But that debt-free home doesn’t mean you have the cash to cover a furnace repair, and the money used to clear the mortgage balance can cost far more than the balance itself. Here’s what pre-retirees and retirees need to consider with the latest Bank of Canada overnight rate increase.
Why does a rate hike matter so much to pre-retirees?
Canada’s central bank lifted its overnight rate to 2.5% because inflation has hovered around 3% since April 2026, and is expected to reach 3.5% by year-end, according to the Bank of Canada’s Oct. 28 announcement.
The key is that the BoC’s Governing Council was clear that future hikes weren’t off the table, stating there “could be a need to increase the policy rate further.”
The next BoC rate decision is Dec. 9, 2026.
This immediate rate hike and the possibility of future rate hikes matters to everyone, but has a particular impact on those Canadians who are carrying a mortgage close to retirement.
Statistics Canada found that households led by someone aged 55 to 64 held $315.7 billion in mortgage debt in early 2024 — an average of $109,337 — up from a total mortgage debt of $244.2 billion in 2020, for an average mortgage debt of $83,551.
To decide whether to pay it down faster, Seun Adeyemi, a financial planner at Odyssey Wealth, suggests every Canadian complete three financial checks.
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Check 1: Does your mortgage rate beat what your savings can earn?
“Paying down a mortgage is a guaranteed, tax-free return equal to your mortgage rate,” says Adeyemi.
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The fair comparison is the after-tax return you can realistically expect from your Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA).
Higher rates tip the scale toward the mortgage. But Adeyemi says an RRSP contribution in your peak earning years can still come out ahead, thanks to the tax refund.
To maximize the tax benefits of an RRSP and the guaranteed tax-free return of paying down the mortgage, Adeyemi explains that many Canadians execute on both strategies.
“Many pre-retirees do both: Contribute to the RRSP, and then apply the refund against the mortgage,” he says.
Check 2: Could your retirement income carry a higher payment at renewal?
The biggest risk of not prioritizing repaying your mortgage debt is the future cost of that payment. “The risk is the payment at renewal, not the rate itself,” says Adeyemi.
In other words, if you can absorb a higher mortgage payment, then it doesn’t matter if rates rise, as long as you’re on-track with your financial goals.
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To help, Adeyemi offers his clients a simple test: Could your retirement cash flow — Canada Pension Plan (CPP), Old Age Security (OAS), a workplace pension and investment withdrawals — cover the payment if you renewed at a higher rate?
If the honest answer is “barely,” Adeyemi says paying down the mortgage before your retirement date should move up the list.
Adeyemi also recommends answering this question if rates were to move 1% to 1.5% above today’s current rates.
Check 3: What will it cost to free up the cash?
Considering whether you should empty an account to kill the mortgage? Adeyemi flags two traps.
First, money taken out of an RRSP or a Registered Retirement Income Fund (RRIF) is fully taxable, “so you may need to withdraw far more than the balance,” he explains.
Plus, the Canada Revenue Agency (CRA) requires your financial institution to withhold 10% to 30% of an RRSP withdrawal, depending on the amount, but the full sum is added to your taxable income for the year.
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To illustrate, let’s assume you need to repay $50,000 on your mortgage to be debt free. To do this, you’ll need to withdraw as much as $71,400 — assuming 30% is withheld at the source. As a result, you’ll have almost $72K added to your income for the year, just to repay $50K in mortgage debt.
If the withdrawal pushes your net income past $95,323 — the 2026 threshold where OAS starts to be clawed back at 15% for every dollar above the threshold — you will also lose government supplemental income.
Second, home equity is illiquid. To get access to that equity, you’ll need to either borrow or sell. As a result, most financial planners — including Adeyemi — advise keeping an emergency cash reserve, such as cash kept in a high-interest savings account.
What to now and before the end of the year
Want to be debt free but not sure if you should proceed? Before redirecting your savings, complete these steps:
- Find your mortgage renewal date and estimate the balance you’ll owe upon renewal.
- Stress-test that payment at 1% to 1.5% above today’s rate. What will you need to pay, per month?
- Compare your current monthly payment and your future monthly payment. How does it stack up against your expected CPP, OAS, pension and withdrawals?
- Now, weigh your mortgage rate against realistic after-tax investment returns. Could you earn significantly more if the money stayed invested?
After answering these questions, you’ll want to decide whether to prioritize mortgage debt repayment, or try to double-dip with contributions to your RRSP while repaying your mortgage.
Remember, carrying a mortgage into retirement isn’t automatically a misstep. According to Adeyemi, it can still make sense “when your rate is low, you have strong liquid assets, and your pension or retirement income covers the payment comfortably.”
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Steven Brennan is a freelance finance writer based in Vancouver, BC. He holds a BA and an MA from Maynooth University, Ireland. His work regularly appears at Canadian Mortgage Trends, Lowest Rates, Loans Canada and other Canadian and U.S. brands.
