Planning Full Mortgage Repayment Before Retirement

Entering retirement mortgage-free fundamentally transforms your quality of life and reduces your income needs by 30 to 40%. For a couple whose mortgage payment is $2,000 per month, that is $24,000 less per year to fund with retirement income. This goal is achievable with proper planning, even if your current amortization exceeds your retirement horizon.

Calculate your gap and your goal

The first step is calculating the gap between your residual amortization and the number of years before retirement. If you are 50 with a 20-year residual amortization and target retirement at 65, you have 15 years to repay a loan planned over 20 years. The 5-year gap must be closed through acceleration strategies. If your gap is zero or negative, your current pace suffices, but acceleration strategies remain worthwhile to free your property even sooner.

Your five-step action plan

1. Shorten amortization at each renewal: This is the most powerful lever. At each renewal (typically every 5 years), reduce your amortization. Going from 25 to 20 years increases the payment by about 12% but saves tens of thousands in interest. At the following renewal, move from 15 to 12 years if possible. Your AMF broker calculates the adjusted payment and ensures it remains within your means.
2. Maximize annual prepayments: Use your prepayment privileges to the maximum every year. Identify recurring sources: year-end bonuses, tax refunds, automated savings. A $10,000 annual prepayment on a $200,000 loan considerably accelerates repayment.
3. Increase payments by 10 to 15% at each renewal: Your income generally increases over time through promotions and salary raises. Align your mortgage payments with this progression by increasing 10 to 15% at each renewal. The effort is minimal if you apply it progressively.
4. Switch to accelerated bi-weekly payments: If you have not already done so, accelerated bi-weekly adds the equivalent of one month's payment per year, applied directly to principal. On a $200,000 loan, this can reduce amortization by 2 to 3 years.
5. Evaluate the RRSP vs mortgage prepayment trade-off: If your marginal tax rate is high (45% and above), RRSP contributions offer an immédiate tax deduction. The optimal strategy is often to maximize RRSP to get the tax refund, then use that refund as a mortgage prepayment. You benefit from both advantages.

Planning your retirement income without a mortgage

Once the mortgage is eliminated, your retirement income has much less pressure to bear. In Quebec, the main sources of retirement income include the Quebec Pension Plan (QPP), Old Age Security (OAS), RRSPs converted to RRIFs, and employer pensions where applicable. Without a mortgage, a couple whose monthly needs drop from $5,000 to $3,000 sees their financial situation considerably simplified. An AMF-certified broker models your personalized scenario and guides you toward full repayment before retirement, coordinating the mortgage strategy with your overall financial planning.