Should You Pay Your Mortgage Off?

Mortgages are the most common personal debt in Canada. Why? Because if you cover your mortgage based on the type of loan, generally, you will finance 80% of the home price. However, the sum of the mortgage is not only the price of the house, but the interest to be paid on the mortgage itself.

There’s a question many people ignore: “Do I have to pay off my home mortgage before I retire?” The response is more complicated than you might think.

Advantages of Paying Off Your Mortgage

1. Peace of Mind

It’ll feel good to know that you no longer owe the creditor payments.

2. Less Money Down the Drain

Enjoy savings in your pocket instead of spending money year after year on home interest payments.

3. Financial Freedom

After paying off your mortgage—unless you have other debt—you have the financial freedom to pursue other activities, like starting another business.

4. Security

Eliminating mortgage balances significantly reduces the risk of losing your home in the event you lose your job or experience unforeseen health problems.

5. Boost Savings

By not having a mortgage payment, you’re able to save even more. You can deposit additional money in a savings account, invest in diversified asset classes, and so on.

6. Mitigate the Unstable Real Estate Market

One of the biggest concerns for most homeowners, especially when recalling the Great Recession, is the effect an unstable real estate market can have on homeowners. The ability to keep up with mortgage payments during a severe financial crisis can be a massive burden.

Disadvantages of Paying Off Your Mortgage

1. Lesser Liquidity

Keeping the mortgage and the money you could use to retire, you create an ideal personal account balance. Yes, it'll be one with different obligations (your mortgage), though equally one with multiple assets (cash). Eliminating the cash loan also limits your tendency to cope with unexpected expenses or investment opportunities.

2. Inflation Hedge

It will be paying off your current mortgage in future dollars, which will actually cost you less in real dollars for years to come.

3. Less Mortgage Interest 

Those nearing retirement are more likely to pay less mortgage interest, perhaps so little that mortgage interest and other price discounts, plus other deductions, are no more than standard deductions.

4. Borrowing Costs

When you chose to borrow against your home that has been repaid in the future, like paying off a new mortgage, it can be much more expensive. Interest rates, which have touched lows for more than four years, may start to rise in the coming years.

5. Opportunity Cost

Even when you see your home as an investment—even if it is not liquid—the increase in the value of long-term residential properties follows other native portfolio investments.