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Having a mortgage in your 60s could be the new normal in the years ahead.

For now, it’s still a bit of a novelty for me to be asked questions like the one from a woman in her early 60s, who has roughly $40,000 left on her mortgage. She’s thinking about retiring early and wonders whether she would be better off:

  • Renewing into a two-year term with accelerated biweekly payments – this would be a heavy load if she did retire, but she’d be done the mortgage at the end of the term.

Or,

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  • Using a home equity line of credit to pay off her mortgage – if there’s a financial shortfall in retirement, she could exploit the freedom offered by the HELOC to pay only the interest owing every month.

For reasons that have as much to do with behaviour as finance, my suggestion is to go with the first option and get that mortgage killed off in two years. The flexibility this reader would get from the conversion of the mortgage to a HELOC is obviously appealing. But there’s a risk of her carrying that HELOC debt longer than two years and thus paying much more interest than necessary.

It could become a habit to pay make minimum payments on the HELOC and enjoy the extra cash flow. There’s also a risk of dipping into the credit line to pay other costs, which would mean increasing the overall amount owing instead of grinding it down.

The load of carrying that two-year mortgage term with accelerated biweekly payments may delay retirement. The reward for waiting would be the ability to retire without the need to carry mortgage payments. Without those payments, her monthly income would go a lot further.

Carrying a mortgage past age 60 is likely to become much more common in the future because of today’s high housing costs. It’s a battle for young adults today to establish themselves in the work force and save up enough money for a down payment in expensive urban areas like the greater Toronto and Vancouver areas. Some young adults will buy later in life than their parents, which is workable because lifespans have been increasing and it will be normal in the future to work past 65.

Whatever age you retire at, aim to offset your lower retirement income with lower living expenses. One of the key ways to reduce your expenses is to have your mortgage paid off.

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