Mortgage planning is critical to retirement planning

Mortgage planning is critical to retirement planning

Nothing says summer like roasting smokies over a campfire. It seems everything tastes better roasted.
Smokies were on the menu during my family’s most recent tenting trip.
But my wife Catherine, who was a vegetarian for 11 years before our boys were born, doesn’t venture beyond chicken or fish these days. So she threw what she thought was a veggie burger on the camp stove while she finished preparing our salad.
Just before we sat down to eat, Catherine looked at her burger, hesitated, poked the grey, tough patty with a fork and grimaced.
 “I think this is one of Bongo’s burgers,” she said.
Bongo is our Blue Heeler. He eats raw patties made from chicken –who knows what part of the chicken- and veggies. He loves them. We’re not certain whether the burger in question was a terrible looking veggie burger or an over-cooked dog burger because Catherine decided she wasn’t up for a taste test. Bongo didn’t turn his nose up though.
The point of this story is two-fold.
First, Catherine never feeds Bongo so it’s possible she might have mistaken his burgers for hers in our rush to pack and hit the road. The mortgage industry is complex and becoming more complicated by the day. Lender policies are always changing and unless you’re fully immersed in the industry it’s very easy to confuse a good mortgage for a highly restrictive, potentially expensive mortgage. Most people compare rates but don’t look to the fine print, especially in the areas of pre-payments and penalties. There are “value” mortgages that offer enticingly low interest rates but come with extremely punitive payout penalties. Plus, the best mortgage for you depends on your current financial situation, your long-term goals and what’s currently happening in the market and the economy.
The second point of the story relates to the common expression about senior citizens eating cat or dog food because they didn’t plan properly for retirement.
A financially sound retirement depends on two things. The first is having enough money to supplement Canada Pension, Old Age Security and, if you’re fortunate to have one, your work pension.  The other side of the equation is your debt level. More Canadians are approaching or entering retirement with debt, including mortgage debt. Many seniors are taking reverse mortgages to tap equity in their home so they have enough cash to live on. I’d only recommend a reverse mortgage under dire circumstances.
You may be decades from retirement but there are recent changes in the mortgage industry that will push rates up in coming months.
The government has limited how much mortgage money banks and monoline lenders can back-end insure with CMHC. Without going into technical detail, the result is that it will become more expensive for banks to obtain money to lend out as mortgages. And banks will certainly pass the higher costs on to borrowers.
As I write this, another round of mortgage rate increases are being pushed through by lenders. Some are up almost 1 per cent since the low point in spring. We’ll certainly be in a rising rate environment over the coming years. If you can afford it, increase your mortgage payments to match a 4 per cent rate. If you are expecting a reduction in income – perhaps due to a maternity leave – then you are better off saving money each month and then making a lump sum payment so you aren’t committed to higher payments. The same lump sum approach applies for investors who want to deleverage. Experiment with my mortgage calculator to see how even small payment increases or lump sum payments can result in significant savings. If you want to speak to a financial advisor to get an expert opinion on how you are doing with your retirement plan, let me know, and I’ll make an introduction.
I’m sure we can all agree that dog food is for the dogs.

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