It scares 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.
Source: Rob McLister, CMT www.canadianmortgagetrends.com/canadian_mortgage_trends/2013/12/a-mortgage-resolution-to-keep.html