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Mortgage Freedom Now Comes Two Years Later: Poll

Mortgage-interestSeveral polls have suggested that it’s taking longer to pay off a mortgage. The latest such survey came out on Friday.

According to CIBC/Leger, Canadian mortgagors now say they won’t be mortgage-free, on average, until age 57. That’s two years longer than respondents said last year.

Not surprisingly, racking up debt makes it harder to pay down a mortgage. Among people who accumulated non-mortgage debt after buying a home, only 11% made extra lump-sum payments on their mortgage. That compares to 19% for people who didn’t add additional non-mortgage debt.

Major factors that determine average mortgage payoff time include:

  • Interest rates
  • Home prices
  • Government mortgage policies (like maximum amortization length)
  • Income and employment growth
  • Spending and savings habits

(Incidentally, these factors could theoretically conspire to reduce payoff times in the future. So the above-noted two-year delay in mortgage freedom isn’t necessarily irreversible.)

Seniors-MortgagesWe can’t control most of these variables but we certainly have say in how much we spend. On that note, the survey found that one half (50%) of Canadians added non-mortgage debt after buying their last home. That’s significant, given that debt accumulation can extend a mortgagor’s effective amortization substantially.

As just one example, consider someone who piles up $5,000 in consumer debt at 19% interest. Paying 3% of the original balance ($150) each month means it’ll take four years to pay off that debt.

If that $150 per month were instead used for mortgage prepayments, a $200,000 mortgage could be eliminated more than four and a half years sooner (assuming a standard 25-year amortization, monthly payments and a rate of 2.99%).

Alas, debt accumulation is often unavoidable. Then again, sometimes it is avoidable but we tend to want life’s luxuries and conveniences now, not later. Either way, while paying off a mortgage at 57 is bad enough, carrying it into retirement (when earning power drops) could be downright perilous for some.

BMO says that over half of Canadians expect to have a mortgage after retirement. One has to wonder how many unprepared retirees will regret not making more savings sacrifices earlier in life (to the extent they could have).

Poll details: CIBC’s poll was conducted by Leger Marketing. It was an online survey of 1,503 18+ year old Canadians from February 19-25, 2013. All respondents had a mortgage they were responsible for.

Rob McLister, CMT