On average, most Canadians currently holding a mortgage plan to pay it off by age 55, leaving a short window of opportunity to bulk up their retirement savings. However, many Canadians have achieved mortgage freedom by age 48, according to a CIBC poll conducted by Harris-Decima.
Through the poll, CIBC has uncovered the extra steps and decisions that can accelerate mortgage repayment and help ease retirement stress. A majority of mortgage-free respondents used one or more of the following strategies to pay down their mortgage faster:
- 52% made lump sum payments annually
- 42% increased the amount of their payments
- 40% increased the frequency of their payments
To implement the above strategies, 78% of mortgage-free Canadians say they made a number of sacrifices along the way, including:
- Skipped large, “unnecessary” purchases
- Creating a budget to track their spending
- Cutting down on extra spending, including restaurant and entertainment costs
- Skipping vacations
“Being mortgage-free is a top financial priority for many Canadians,” says Colette Delaney, executive vice-president of mortgage, lending, insurance and deposit products for CIBC.
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She suggests, “Consider what you normally pay to your mortgage every month, and then imagine that dollar amount going towards your retirement savings instead. That really puts into perspective the difference paying off your mortgage even one or two years earlier can make.”
CIBC also suggested some strategies to minimize the feeling of sacrifice while people move toward achieving their mortgage goals. For example, tax refunds can be used for a lump sum payment or for increasing mortgage payments modestly at the start of each year. Also, a salary increase can help accelerate mortgage repayment while minimizing the impact on overall cash flow.
With house prices increasingly steadily, Canadians currently paying down a mortgage or planning to purchase a home face a seemingly impossible task in meeting their financial goals. However, current mortgage-free Canadians started out in the late 80’s, with interest rates sometimes hitting the double-digits and making repayment a challenge.
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“Your mortgage is one of the biggest financial commitments you will ever make, and investing time to get advice about how your mortgage fits with your overall financial goals can yield significant financial benefits down the road,” says Delaney. “Following easy strategies and capitalizing on today’s low rates will help people accelerate mortgage repayment.”