The Sequential Approach to your Mortgage and Retirement

Here’s the problem at hand: you have an expensive mortgage that needs to be paid and you have a retirement fund that needs to be funded. So two money-related goals that are quite important. Certainly neither of them can be ignored. So what do most Canadians do?

The answer is quite simple – they decide to first pay down their mortgage and then once that’s gone, start saving for retirement. And this is understandable. Firstly, with such a large debt hanging over one’s head now and retirement so far away(?), the natural instinct is to try to get debt free as soon as possible. But there’s another reason. When faced with limited income, most Canadians simply can’t afford to do both. And so naturally they choose to make the mortgage payments, which is a contractual obligation, versus put that money away for retirement, which is optional.

There is a better way!

The problem with this sequential approach, however, is that while you are busy paying off your mortgage, you are necessarily not busy investing for your retirement. And that gets terribly expensive. The reason is that because while the mortgage balance is coming down (which feels good), the equity in your home rises (which also feels good), but what is happening is that you are creating potential wealth for yourself which is in turn doing nothing for you (which does not feel so good). In fact, you are not only earning zero percent on this equity, you are actually losing out to inflation (and that feels terrible). But what feels worst of all is that you are missing out on the magic of compound growth.

And enjoying compound growth feels fantastic!

Man on stairsSo what if you were able to do both? Not only attack your expensive mortgage debt but also start investing for your retirement? And do both starting right now? Well, you would be saving many thousands in interest expense and you would be investing as soon as possible and as much as possible for your beach and golf time. Compound growth is extremely powerful, and if you are able to invest $1,000 a month for the next 25 years at 8% growth, you would end up with, pre-tax, over $900,000. Almost a million dollars of increased wealth by taking advantage of compound growth. And what’s more, that’s just the start. If you employ The Smith Manoeuvre ™️, not only will you take advantage of compound growth to improve your retirement comfort, you will also eliminate your burdensome, non-deductible mortgage faster than you thought possible and will enjoy tax deductions each and every year going forward with the strategy. Learn more here. And remember, procrastination is the enemy of your financial success!

Find out more

As mortgage broker’s we are on your team. Our job is to understand your needs, plans and wants in order to understand your mortgage needs. We then look at a number of lenders to find the best products and solutions for you.

During our time in the industry we have learned a number of tips and tricks to help you save money and to pay of your mortgage faster.

If you have any questions or would like a customized mortgage plan let us know!

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