Friday, December 29, 2006

Retirement Trip Wire aka: The Mortgage

While looking at my mortgage balance recently, I realized that I have a small problem with my retirement plans. I want to retire when I'm 45, which is about 16 years away. The problem is my mortgage amortization is currently at 19 years, so I have to either accelerate the mortgage pay down by three years or live with the payments for three years in retirement.

I've never liked paying interest, so I think I'm going to try to find a way to accelerate the pay down by three years. Currently I have maxed out my semi-monthly payments with my current mortgage, so I have to wait until three years to pick a shorter amortization or start applying lump sum payments to it. I'm not sure which way I'm going to do it.

So like all good plans, I'm finding some holes in my plan to retire at 45. So far I don't think I'm past the point of saving the plan, but this has proven to be a bit more of a challenge that I first thought.

5 comments:

Anonymous said...

I consider extra mortgage payments to be equivalent to fixed income. No point in buying fixed income investments when I can get a better rate of return by throwing extra money at the mortgage.

SS

Q Cash said...

CD

If you have the option, you should use the accelerated weekly or bi-weekly payment.

A 25 year mortgage is paid of in 19 years (or something like that).

When it comes time to renew, look at those options (and you can always adjust the amortization at renewal, just be prepared for the higher payments).

If you have cash on hand now, why not see if your mortgage has any lump sum payment privileges and make a lump sum payment now (a couple extra thousand now will take off years at the end).

SS

I have always been a believer in paying off all debts as soon as possible. Despite all the calculations and tax deductions (using the smith manouvre, etc.) at the end of the day, when you are paying interest you have an expense you shouldn't have to pay.

Q

Canadian Dream said...

qcash,

I spent some time playing with a few mortgage calculators and I have worked it out if I can put down $12,000 in the next 3 years or so on the mortgage I should be able to pay it off in time to retire at 45.

I'll keep you posted on how it works out.

CD

q cash said...

Hey CD

Sounds like you have things well in hand anyways. $12,000 over 3 years is only $333 per month you have to come up with. But remember, with mortgages, the more you can pay down the principle earlier on, the better.

Good luck,

Q

Canadian Dream said...

Q,

Yes I noticed that with the mortgage calculator graphs. The sooner you add a lump sum payment the more your interest costs drops.

I'm thinking of putting about $400/month to it to get rid of it sooner.

CD