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Assumptions

The break-even rate is an effective rate, not a nominal rate. The effective rate depends on the compounding frequency of the loan. The higher the compounding frequency, the higher the effective interest rate will be for a given nominal interest rate.

A nominal rate, or annual percentage rate (APR), represents the total cost of a loan or other debt each year as a percentage. This is the number that you will typically see reported as the interest rate for the loan. If your loan compounds annually, the effective rate for the loan is the same as the nominal rate.

Pay down debt or invest calculator
If you have extra money, this calculator helps you decide whether to invest or pay off debt.

Your loan:

 %
 
1.00 50.00
Help
Help
%
Tax paid on each extra dollar of income earned; rate is based on income level. Different rates apply to interest, dividends and
capital gains.

For assistance in calculating the marginal tax rate on your income, please use this
marginal tax rate calculator.  This link will open in a new window
 
0.00 90.00
Help
Note that interest on RRSP, TFSA and RESP loans is not
tax deductible

Your investment:

Help
%
Investments in registered accounts (e.g., RRSP or RESP): returns are not taxable until withdrawn, so enter “0.” Investments outside registered accounts: returns are taxable in the year they’re earned.
Capital gains are taxed when the investment is sold; the capital gains inclusion rate is 50%, so enter half your marginal tax rate. Interest is taxed at your marginal rate, so enter that same number. Dividends are taxed based on
their type.

For assistance in calculating the marginal tax rate on your investment, please use this marginal tax rate calculator.  This link will open in a new window
 
0.00 90.00

Results

Your break-even rate is 11.63%. The break-even rate is what your investment must earn – before tax, if applicable – to match the return from using your money to reduce debt. If you don’t think your investment can beat the break-even rate, it’s normally better to pay down your loan.

David Chilton discusses when it makes sense to use a line of credit, and why you might want to pay it off.

Any results or calculations displayed on this site are made available for information purposes only, and do not constitute financial or legal advice. By using this calculator, you agree to the Investor Education Fund Website and Social Media Terms of Use and Privacy Policy.

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