Thursday, January 2, 2014

If you're going to commit to one thing this year, make it this!



A fabulous, sobering reminder from Canadian Mortgage Trends:  If you're going to commit to doing one thing this year, make it this! I know many of us feel that retirement is very far away but it comes faster than we think. Good planning while you are younger makes the difference between enjoying your golden years or living in poverty and stress. In my line of work I come across many retired people that do not have enough to live on because their housing costs are too high. That is scary. My advice is to use today's low interest rates to pay extra on your mortgage. It is a wonderful opportunity. Use it to your advantage!  

December 30, 2013

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


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