A Mortgage Resolution to Keep

Mortgage_ContractIt scares the #*!@ out of me to think about retiring with a mortgage. And if you’re making minimum payments on a long-term mortgage, it should scare you too.

The stats are no joke:

  • 43% of 55 year olds say they haven’t saved enough for retirement.
  • 50% of Canadians believe they’ll run out of money within 10 years of retiring.
  • 1 in 4 retirees bear the load of a mortgage.
  • 51% of today’s borrowers expect to carry a mortgage into retirement.

Imagine the trauma of depleting your savings, being without full-time income, and still having a mortgage payment. For some, it’s a doomsday financial scenario.

Luckily, there is a straightforward New Year’s resolution that can help forestall this outcome:

Increasing one’s mortgage payments.

You don’t need to raise them by much. For someone with 20 years left on a mortgage, for example:

  • A 2% annual payment increase will retire that mortgage 3.6 years sooner
  • A 3.5% annual payment increase will retire it 5.3 years sooner
  • A 5% annual payment increase will end it 6.7 years sooner

(Assumes a static 3.49% interest rate for simplicity.)

Every extra $1 of principal that you pay down today saves a minimum of $1 in interest over a typical mortgage lifespan.

So, while you’re making New Year’s pledges to exercise more, eat better or the like, consider a resolution that dramatically improves your financial health. If you don’t have a better use of your free cash flow (i.e., you don’t have higher yielding investments, higher interest debt to pay off, etc.) then take a step towards the peace of mind of owning your home free and clear. Do what 60% of Canadian mortgagors never do, and voluntarily raise your mortgage payments.

Rob McLister, CMT

  1. When I moved from an apt 3 years ago to a house, I continued to pay my mortgage as if I was paying rent. my payments are biweekly, been putting in an extra 15% every payment towards the principal. I think I am already ahead if s. schedule by 3 years. makes a big difference

  2. Hello,
    Can anyone recommend a good calculator that shows how extra payments cut the time required to pay off a mortgage?

  3. When the time comes in the not too distant future, I will be selling my over priced house in the GTA and moving to some place in the Maritimes where I will buy the same house for half the price and live off the equity I built up (the current house is almost paid for) Along with my investments I should be somewhere between OK and living like a king. Who the hell wants to stay in the GTA when they retire anyway?

  4. Best get your Maritimes land while the getting’s good. I could see the prices of desirable property near the water doubling in 10 to 15 years.

  5. Home Equity Bank, if you qualify you could pay off existing mortgage from equity in your home and not have to sell.

  6. Just because you don’t make a payment, it doesn’t mean you don’t end up paying for it Shirley. Reverse mortgages are a solution for some people but if this is the solution for all the seniors going into retirement with large amount of debt, then we have big problems coming

  7. RW you are correct, not for everyone, but is still an interesting product and great for people like me who are single, no children and not concerned with leaving equity in my property to siblings. It will be a bonus to pull out my equity, pay off any existing mortgage at the time and have no payments during my lifetime! Definately not a solution like you said but option and lifesaver for some!

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