Personal Finance » Debt

Why you should pay down your mortgage sooner

Money can bring happiness – it can also cause stress, especially in relationships. Over two-third (68 percent) of couples say fighting over money would be their top reason for divorce, followed by infidelity (60 percent), says a BMO survey. That’s right, fighting over money is worse than cheating on your spouse!

Many of those arguments have to do with debt. And what’s the single biggest debt for most families? A mortgage. It used to be considered taboo for seniors to carry debt into retirement. How times have changed. Of homeowners 65 years or older, over a third (35 percent) have a mortgage, according to Mortgage Professionals Canada. These aren’t just small balances we’re talking about – the average loan-to-value ratio is 33 percent.

A common argument is that it makes no sense to pay down your mortgage, especially while mortgage rates are so low. I disagree. While I’m aware most people can’t pay off their mortgage in three years by age 30 like me, that doesn’t mean you should take your time paying off your mortgage and carry it into retirement. Here are three compelling reasons from my upcoming book, Burn Your Mortgage: A Simple, Powerful Path to Financial Freedom, on why you should pay down your mortgage sooner.

To reduce stress

Skyrocketing home prices mean people are taking on bigger mortgages than ever before, often carrying debt into their golden years. Paying off a mortgage is especially challenging when you’re on a fixed income. What if you’re in your peak earning years right before retirement and you’re suddenly laid off from work? This can throw a wrench in your plans to be mortgage-free. Don’t put yourself in this risky situation, to begin with and aim to pay down your mortgage before retirement. By paying down your mortgage early, you can reduce stress and hopefully avoid a costly grey divorce. You might even be able to afford to take a job you truly enjoy that pays a little less.

To save on interest

To see how much interest you’ll save, it helps to understand how mortgage payments work. The interest on mortgages is front-loaded. In the first five years of your mortgage, as much as 90 percent of your payments can go towards interest, not principal. If you pay off your mortgage over 25 years, you could end up paying over double the purchase price of your house when interest is included. Ouch!

Mortgage rates are near a record low, so take advantage of them. Make lump-sum payments with “found” money. Instead of using your tax refund money to go on a cruise to the Bahamas, pay down your mortgage. You may not get as nice of a tan, but by making extra payments, you can save tens of thousands of dollars in interest and pay off your mortgage years sooner.

A guaranteed rate of return

There are few things in life that are certain besides death and taxes. Conventional wisdom says you should take your time paying down your mortgage. Why should you be in any hurry when you can get a better return in the stock market? While that may be true, there’s no guarantee. If we have another financial crisis, it could take your portfolio years to recover. That’s why I prefer the guaranteed rate of return of your mortgage.

Achieving financial freedom

A paid-off home is the first step in achieving financial freedom. A mortgage-free home reduces financial stress and makes a lot easier, especially in retirement. With your mortgage paid off, you can afford to pursue your true passions in life like writing a book, traveling and volunteering.


  1. Jim

    I’m actually pretty excited about this – I’ll have one of my rentals paid off in 7 years and then my residence 2 years later. That’s also when I’ll be quitting the 9-5 and working on some more fun things like traveling, getting some more exercise (racquetball and martial arts), and just enjoying life!

    — Jim

  2. Kevin

    Why even own,friends of mine pay more in taxes and upkeep than I pay in rent.This gives me the ability to invest over 50% of my take home pay for my retirement in twenty five years.
    I watch them stress over big bills,live month to month and once they’ve paid off the mortgage,don’t forget ever increasing property taxes and upkeep which over the 40year time of home ownership will triple at least the original price.Another thing that isn’t taken into account either is that those bills are in after tax dollars so add another 25%-30% into the kitty also.When they’re in their mid fifties they have ten years to save for their retirement and receive no compounding benifits to their investments.
    I would rather have a million in cash than a million dollar house(that cost me 3 million gross to buy over my lifetime)

  3. Claude Mayrand

    Jim and Kevin have very different views. Both very interesting.

    I rent. I’ve owned two homes, one personal, on rental. The rental became a stressor, the personal I paid off in 4 years.

    I didn’t like spending so much time and money on either property.

    For a family, there are advantages to owning a property mainly for the kids. Except when the kids are locked in to digital devices.

    Kevin’s million in cash is my personal preference. Over the years my portfolio has also paid me cash every month.

    For instance, the initial $39,000 invested in my TFSA is generating $569.00 a month, but I do re-invest those distributions every year. $569 a month is an 18% return on $39,000, tax free; 18% compounded doubles in 4 years.

    A million? At the returns I get I could afford rent anywhere.

Leave a reply

Your email address will not be published. Required fields are marked*