Retire Debt & Mortgage Free
With the recent spike in home values across Canada and specifically in the Greater Ottawa Region, one of the questions I am asked quite often is, “Should I take advantage of the “cheaper money” the banks are lending and use the equity I now have in my home or, should I focus on eliminating my mortgage and debt before I retire?”
As you borrow money from your house, through a Home Equity Line of Credit this
money is essentially a mortgage, as it is tied to the equity in your home. This loan will
need to be repaid and always with interest. One reason for people to consider a HELOC is that we are currently in a season of low interest rates, but that is for now and there is no guarantee that interest rates will remain this low long term. When rates increase as they likely will, that loan may then become difficult to repay.
“While there are a few things to consider, my underlying principle of preparing for
retirement is to be debt free”.
Mortgages are the most common and significant type of debt held by Canadians. Results from the 2019 CFCS show that about 40% of Canadians currently have a mortgage and of those, 43% of people owe $200k or more. In my opinion a disturbing stat that relates to retirement is that almost 1 in 5 seniors aged 65 or older still have a
mortgage (www.canada.ca).
With this in mind, I have included a few ideas to help you pay off your mortgage faster, so when retirement hits you don’t have one:
One of the easiest ways to reduce your mortgage is through Bi-Weekly Accelerated payments. With the bi-weekly accelerated option, you'll divide your monthly payment amount by 2, and then pay over 26 pay periods. With this option, payments are a little higher, amounting to roughly one extra payment made per year. This is an effective way to whittle down your amortization faster.
2. Another option is to make Lump Sum Prepayments. While not a regular mortgage payment, this option allows you to pay an additional chunk toward your mortgage principal, up to a certain percentage each year. Where you find this money is up to you but using an income tax return, having a side hustle for a season and simply reworking your budget are all ways to make it happen. Look at it this way, earning interest is a reward, paying interest is a penalty, reduce your penalties as soon as you can.
Being debt free for your retirement years is a must in my opinion. This will enable you to focus on spending the money you have saved the way you want and not using it on interest payments - allowing you to focus on Family, Fun and Freedom!
