BC Sunshine Coast real estate by Menno at Royal lePage Real estate on the BC Sunshine Coast

Many people have signed up for mortgage loans that will extend well into their retirement years. Very few people enjoy the thought of making mortgage payments during those years when income will be less.

Is there something wrong with carrying a mortgage into retirement? Some say it's too much of a burden, others say it's at least better than continued renting.

Most people will see their income drop significantly after retirement. This may be offset, to a point, by a smaller level of general expenses. After all, you won’t have to pay for commuting, office lunches, attire and business expenses any longer. Life could be less expensive but it sometimes isn’t. If you’d like to go travel, for instance, instead of working – well then you may actually need more money during your “golden years”. This is why many people say that your retirement years should be mortgage-free.

Some will achieve that, yet half of Canadians expect to carry a mortgage into their retirement years. With debt levels higher than ever and savings rates at their lowest, more people are expected to be lugging a mortgage into retirement. For some, mortgage freedom comes earlier than expected. Of those polled who successfully paid off their mortgage, they were able to do so, on average, by age 48.

The dry statistics also say that about half of Canadians expect to carry a mortgage into their retirement years. Of the more than three-quarters of Canadians aged 50 to 59 who own their homes, nearly half currently have mortgage debt. For the age-group 60 to 69, about 75% own their homes, meaning that a quarter of them are still carrying a mortgage. There are, of course, reasons why we carry debt into later life.

You don't need to own a home, you don't have to have a mortgage. You could also be (or become) a tenant and elect that as your preferred lifestyle.

HOW DID WE GET LONG-RUNNING MORTGAGES

Over the years, an economic shift has occurred. Since mortgage sizes have risen much faster than incomes, people tend to stretch out their mortgage repayments (amortizations) over a much longer time. When 20 years as a max was quite common some 30 years, we now see new mortgages in the 25-30 year ranges. There are still a lot of mortgages out there that were meant to be running for 35 years or sometimes even longer.

Also, when people got a mortgage 20 years ago, personal savings rates were over 4 times greater than they are today. Saving was “fun” back then, when interest rates were high. Not many people, these days, enjoy saving their money to receive a 3/4% annual return on their money. That’s even less than the inflation rate. Following this, people back then were also more inclined to make accelerated payments or prepayments.

Once you have a home and a mortgage, you can expect the property value to go up while the amount of the mortgage gradually gets paid down.

QUICK, GET RID OF THAT MORTGAGE

To pay off a mortgage takes nothing more than sticking to the amortization schedule. If you find that not fast enough, there are many ways to speed things up:

• Annual lump sum payments go right off the tail end of the mortgage;
• Increased regular mortgage payments also come off the end of the loan;
• Increased payment frequency cuts on the amount of interim interest paid.

Of course, being able to use these strategies requires financial sacrifices. Heavy budgeting, cutting back on less necessary purchases and general frugality will pay off in the end.

When you were much younger, did you worry about retirement? Not many would have. However, it's likely that day will come and it might bring financial constraints.

NOT YOUR PROBLEM YET FOR FOR MANY YEARS?

Not being retired yet, we tend to think that retirement is still quite a ways away. According to those already retired, it actually arrived much faster than we think. By making sacrifices now and capitalizing on today’s low rates, homeowners can shave several long years off their mortgage. A little pain now is probably worth the gain later. Also, most people’s incomes will drop in their golden years – which makes mortgage payments an even harder pill to swallow.

As grave as it sounds that you may be carrying a mortgage into your retirement years, there’s one rarely-discussed alternative that about 25% of Canadians will be stuck with: to pay monthly rent in your retirement years.

Perhaps, having a mortgage payment is not ideal in most people’s view. Yet, the prospect of having to make rent payments until the day you die is possibly much worse. When making mortgage payments, you’re at least contributing to your financial future, even when you’re retired. Not so with rent payments. Most people would consider rent money like throwing it out the window. When the rent payment is made and the rental month has passed, you’ll have absolutely nothing to show for it.

Even if you're still making mortgage payments, you probably have a whole lot of equity in your home. As a tenant, you would have no such equity at all.

THE END OF THE WORLD IT IS NOT

In that light, making mortgage payments for a few more years after retirement doesn’t sound like it’s the end of the world, or does it? After a number of years, the mortgage WILL be paid off – and you’ll own the property free and clear. You’ll be free of monthly mortgage/rent payments. This, to prove again that there’s really nothing quite like home ownership.

Just as you thought we’d gone over all the possibilities of finding alternatives for carrying mortgage debt into retirement, here comes the best one of them all: move to the BC Sunshine Coast. Since homes are much less expensive here, your mortgage will be much smaller and paid off quicker. You might not even need a mortgage.

This suggested alternative really goes to spending and budget control, of course. We don’t particularly want you to move to the Sunshine Coast because real estate is cheaper. There are much better reasons for making such a move: the scenery is beautiful, the wildlife is spectacular, the environment is clean, transportation is outstanding, all services are available, the people are friendly and our various villages are wonderful.

Mortgage financing is complicated, much more so than it seems at first glance. Below are some additional blog articles on this topic if you choose to dig in a bit deeper.

MORE blog articles about mortgage financing can be found through any of the links below:

Mortgage and credit score: http://www.mennorealty.ca/Blog.php/mortgage-connection

Fixed of variable mortgage? http://www.mennorealty.ca/Blog.php/eternal-mortgage-question

When you think you can’t buy: http://www.menno.ca/?p=20058

Proving income, how to: http://www.mennorealty.ca/Blog.php/proof-of-income

Small homes, big home, small land, big land: http://www.menno.ca/?p=20216

Mortgage loan help from CMHC: http://www.mennorealty.ca/Blog.php/cmhc-can-help