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

  1. People are taking on / maintaing debt later in life (comparatively speaking) partially because the target has moved. In other words people are living longer, working longer and carrying debt longer.
    It’s a natural spin-off of increased longevity and nothing to be too stressed over. I would suggest that the issue has been somewhat overblown by the MSM.

  2. There is much more at work here than longer life expectancy. Interest cost has been falling for years and yet mortgages are still taking longer and longer to pay off. Ask yourself why the average payoff age has risen faster than the average life expectancy over the last decade. Longer life expectancy and longer careers don’t have to make us slaves to the bank for longer.

  3. If people try to pay down their higher interest cost debts first ( loans & credit cards) there is not much extra income available to pay down mortages faster thus only 11% who find they are able to make lump sum payments.
    As has been said in these columns many times,its not mortgages, its credit cards!
    If Flaherty wants to cool things down, it would be significantly more even handed & the impact felt across the whole economy & not just the real estate & mortgage markets, if he put stronger controls on issuance of credit cards & their maximum limits.

  4. “its not mortgages, its credit cards!”
    That is fallacy. Debt is debt. You have to pay it back regardless of the interest rate. Credit cards are small potatoes compared to debt from mortgages and credit lines.
    The average credit card debt is $3,637. The average mortgage is 48 times greater at $175,000, give or take. Mortgage debt grew around 5% in the last year while credit card debt rose only 0.12%.–982228#.UWQ0R6KXVQg

  5. …and besides, it’s the amount and type of debt that matters most, not to mention net worth as well.

  6. National home prices rose 7 per cent a year over the last decade. Population and wage growth weren’t anywhere close to that. Might that have something to do with it taking longer to discharge a mortgage?

  7. Is taking 2 years of age extra to pay off a mortgage not hand in hand with taking 2 years of age extra to save before buying a home in today’s environment in the first place?

  8. Hi MK,
    People in this survey already had mortgages. Their down payment savings time therefore wouldn’t account for this latest two year increase in payoff time.
    Going forward, if it takes longer to save, mortgage burning parties may happen later in life–other things being equal. But there are other economic variables at play, so current expectations may or may not match reality.

  9. This generation of consumerism wants it all now and has no problem borrowing to get it. This is a dangerous game to play because there are no guarantees of future earnings to pay it all back. If people would just use some self restraint and spend less, then non-mortgage debt would decrease and mortgages would be paid off faster. This obvious of course but people do what they do despite warnings to stay out of debt.

Your email address will not be published. Required fields are marked *

More Stories
canadian mortgages
Majority of Canadian Buyers Borrowing Their Maximum Approved Mortgage
Copy link