Today, I read a very sad story about a 76-year old man who sold his home when his mortgage payment went up. Presumably, the story was about the impact of rising mortgage rates and the lack of affordable housing in Calgary. In reality, what I took from the article was an appreciation of just how risky it is to have a mortgage when you’re on a fixed income.
Now, it should be noted that the article failed to explain why this 76-year old man still had a mortgage!!! To my mind, the journalist who wrote the story – or the editor who removed the relevant details – failed the reading public by leaving the financial questions unanswered. All we know from the article is that the man’s mortgage went from $1,000/mth to $2,600/mth and that he received $2,200/mth in social benefit payments.
Without any confirmation, I’ve tried to be generous and have assumed that he went through a grey divorce and he had to re-mortgage his home so that he could pay half of the home’s value to his ex-spouse. I could be completely wrong, but the bottom line is that his senior citizen has to move out of his home because he can’t afford to repay his mortgage.
When I was born, the mantra to all mortgage holders was to pay off the mortgage as fast as possible. Times have since changed. In the past 20 years, the message has gone out that it’s better to pay the minimum mortgage payment and to invest the difference in the stock market.
Sometimes, I think this is great advice. If you’ve got a 25-year runway ahead of you, then it’s less risky to invest your money for the long-term. You can have your mortgage paid by the time you’re in your 50s and you might still have a decade or more to invest if you retire at age 65. The dollars invested in your 20s might have 40+ years to compound if things go exactly according to plan. You’ll have a paid off home and a comfortable retirement waiting for you. Even if you make a few mistakes with your investing choices, the odds are still pretty good that you’ll retire comfortably.
The calculus changes considerably if you’re starting your mortgage in your 40s or 50s. Going into retirement on a fixed income while carrying a mortgage is like dancing on razerblades! You’re asking for trouble.
Mortgage rates started to skyrocket in 2022 from their historically un-characteristic lows of the previous decade. Rates haven’t stopped going up in 2023. When I worked as a cashier last millennium, any rate under 8% was cause for celebration. My first mortgage rate was 6.50%, and it steadily dropped over the next 20 years. The last mortgage I had in my name was for 2.79%… and I felt ripped off because one of my friends had a rate of 2.49%! I doubt I’ll ever see mortgage rates that low again in my lifetime.
These increased rates are the normal ones. It will take a long time for people to accept that but they are here to stay. The main problem with these rates is that people’s incomes haven’t kept pace with the impact the rates are having on their budgets. People who’ve had to renew their mortgages at rates 3%-4%-5% higher than what they were paying before are having to come up with several hundred dollars more each month to pay back their mortgages. And these are people who are working!
Imagine being a senior on a fixed income. The 76-year old doesn’t have as many options for increasing his income. In this case, he chose to sell his home and is looking for some place to rent. He’s having no luck. Again, the journalist/editor failed to tell us how much he received from the sale of his home and how much of that went to paying off his home equity line of credit. We have no way of knowing whether he’s in a position to buy himself something smaller than his former home. Presumably not since he’s decided to look for a roommate…
Anyway, my point is this. Stories like these should be a cautionary tale. Whatever your current circumstances, strive to stay employed until your debt is paid. Do not retire with debt!
Want to know one of the very worst elements of this story? All of the money that this man put into his house is gone! We don’t know how much of it was siphoned away via his HELOC. What we do know is that all of his payments went to the bank until he couldn’t afford them anymore and now he walks away without enough to buy himself another home. To add insult to injury, he doesn’t even have enough to easily rent another place. He could very well be homeless in a few weeks.
Do yourself a favor and learn from this man’s story. If you have debt, get out from under it. And if you’re out of debt, stay out. It’s so very easy to get into debt but it’s really, really, really hard to get it out of your life. You deserve to have the experience of being debt-free. Live below your means for life!
There are no easy answers. I don’t have any secrets that will make your debt magically go away. All I can tell you is this. If you’re fortunate enough to have some extra money in your budget, then use your good fortune to aggressively pay off your debt. When it’s gone, don’t spend the money on stupidities. Instead, invest it. Save up to pay cash for your next bright-and-shiny-whatever-it-is that you want. Just stay out of debt and don’t become the senior citizen who has to start job-hunting in his mid-seventies. Strive for a debt-free life.