We often hear that our mortgage should be paid when we retire. Is that still the case today?
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Although many retirees have managed to pay off their mortgage before retiring from the labor market, not all have. Because with skyrocketing home prices, skyrocketing interest rates, and delayed access to homeownership, it’s a safe bet that more of us will be carrying a mortgage balance into retirement. But that’s not necessarily a negative.
A different perspective
Émile Khayat, Financial Planner, Regional Manager, TD Bank Group, confirms that he is seeing more and more clients approaching retirement without having fully paid off their mortgage, which can indeed impact the lifestyle they adopt wanted to offer themselves.
“Our vision of retirement today is relatively similar to what it was 50 years ago: it’s estimated that government and employer pensions will account for about 70% of our income. The 30% shortfall had to be made up by not having a mortgage to pay off,” he explains.
However, mortgages back then – $100,000 to $200,000 – were a far cry from the $500,000 we commonly see today. They were therefore easier to integrate into a budget and proportionally took up less space. As a result, one could realistically hope to retire without a mortgage.
Even if there is a balance left, it is usually small because the person has been paying it off for many years. Unless you’ve used your home as an “ATM” by refinancing your mortgage multiple times to pay for renovations, buy a car, etc. In that case, the amount you still owed could have increased dangerously.
Feasible if budgeted
Is It Bad to Have a Mortgage Balance in Retirement? Émile Khayat states that it is quite profitable as long as it is calculated and built into his budget.
“You need to plan for this and factor mortgage payments into your retirement savings. We must be clear that the principle that 70% of our income is enough to support our lifestyle no longer holds,” he warns.
In addition, at 65 you are usually still healthy and happy to travel, for example.
This means that leisure expenses are likely to be high and this must also be taken into account in the financial plan.
So planning is the key to success: Several options are possible, such as staying longer in the labor force: By shifting the retirement age, you could top up your state pension. You may consider adjusting your investments and reviewing your portfolio composition with your financial planner for a higher return a few years before retirement.
“Ultimately, you have to ask yourself whether you really want to leave your heirs a legacy. This can remove a serious financial burden if we decide against it,” says Émile Khayat.
advantage to consider
Having a mortgage after retirement has certain benefits, as it gives you access to a mortgage margin.
So you could use it to pay for unforeseen expenses or improve your retirement income. Be careful, it is better to apply for it before leaving the job market, otherwise your financial institution may be reluctant to grant you one.
The advantage of a framework loan is that the interest on it is usually lower than on other forms of credit because it is secured by the value of your property.
Every month you only have to pay back the interest and not the capital, which gives you more flexibility in your budget. The balance of the mortgage margin and mortgage margin is ultimately paid off when the property is sold.
TIPS:
- Consult your financial planner to develop a strategy if you think you won’t be able to pay off your mortgage when you retire.
- Before you leave the workforce, reduce your other consumer debt as much as possible: credit cards, store cards, lines of credit. Start by paying off the ones with the highest interest rates because they’re the most expensive and most importantly, don’t go back into debt.
- When you’re relieved of the burden of your consumer debt, it will be easier to make ends meet in retirement.
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