I recently renewed my mortgage and was discouraged to see that at the current rate, I would only be debt-free at 71!
I actually paid off my mortgage about 15 years ago, but then used a home equity LOC to do some major renovations and put an extension on my house. Lines of credit have a nasty way of never getting paid, so I eventually rolled the debt back into a mortgage with payments that included equity, but then did not really understand what a ‘fixed payment with variable interest’ meant. Ouch.
I have now put myself on accelerated payments and will have it paid off by retirement. I am open about this because too often there is a taboo about discussing money and that is not helpful. It is easy to make bad choices, especially when secrecy and shame are involved. My journey of learning about money was a long and at times painful one, but I have few regrets.
As a realtor that often deals with seniors and issues of how to stay independent while aging, I am always alert to conversations around aging, health and money. A recent Globe and Mail article about a big jump in reverse mortgages amongst the elderly grabbed my attention tonight. Not every person approaching retirement realizes that it becomes very hard to access regular mortgage financing or home lines of credit once the job has ended. Many seniors find themselves unexpectedly house poor as the years advance, and turn to reverse mortgages as a solution.
Unfortunately, compound interest works just as well for a creditor as it does for Warren Buffett, and once you add the additional fees and the minimum hold times, 7% compounded over several years means you will not have much left for LTC or even to leave to loved ones.
Even if not immediately needed, access to credit should be lined up in advance of retirement. A home equity LOC does not have to be used, it can just sit there as an emergency cushion. That means it is pretty close to free until it is drawn on, and even then you can mange for years with only paying the interest.
It is something to think about. Advance planning works much better than head-in-the-sand hoping, so ask around and find yourself a good fee-for-service financial planner and get some proper advice as to how to best move forward.
Any questions? Feel free to contact me!
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