How to pay off the mortgage faster

This couple doesn’t want to carry any debt into retirement

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From the January 2015 issue of the magazine.

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(Photograph by Jenna Wakani)

(Photograph by Jenna Wakani)

The current situation

Mukesh Aggarwal, 52, and his wife Shabnam, 47, immigrated to Mississauga, Ont., nine years ago with their two sons. Together, the two pull in $175,000 annually, and both receive average annual pay increases of 5%. But despite such lucrative employment, they’re feeling weighed down by the $615,000 mortgage remaining on their home. “We want to retire debt-free,” says Mukesh, noting that their 2.3% mortgage rate expires next July.

Recently, the couple increased their weekly mortgage payment to $700 but feel that won’t be enough. Their goal is to pay off the mortgage in 13 years, before Mukesh turns 65. They are considering putting half of their 5% average annual wage increase towards the mortgage but also want to look at other options. In 2016, their youngest son will complete university, and that will free up $7,500 annually for the mortgage. Although Mukesh stopped contributing to his RRSP, Shabnam still puts $4,800 annually into her TFSA and both pay into their company’s pensions. The couple also spends $6,000 a year on vacations to their native India. Would cutting back in all these areas be enough?

The verdict

According to Tom Feigs, a financial planner with Money Coaches Canada in Calgary, the Aggarwals are not on track to pay off their mortgage before Mukesh turns 65. If they continue to make weekly $700 payments and their mortgage rate increases to an average of 4% (which Feigs feels is a reasonable scenario), it will take 21 years. “Time isn’t on their side.”

To get closer to their goal the couple should reduce their discretionary spending, Feigs says. He recommends cutting their vacation costs in half, to $3,000 annually. They should increase their mortgage payments by half of the net amount of any raises they get ($2,600 this year). Finally, they should redirect money currently set aside for university tuition fees into their mortgage once their son graduates. “This will allow the couple to increase their weekly mortgage payment to $790 a week next year and $950 in 2016, with an additional $50 increase every year after that. Doing all of this will allow them to pay off their mortgage by the time Mukesh turns 66—still a year short of their goal. “A small inheritance, bonus or extra income from renting a room could help them get there quicker.”

Am I On Track Jan 2015 chart

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3 comments on “How to pay off the mortgage faster

  1. How are they to cut their vacation in half if it costs that much to see their family in India? To me, that’s the one thing I wouldn’t cut. Why not sell the house when they retire and downsize?


    • They can go to India once every 2 years, same as to cut their vacation in half.


  2. You should never carry debt into Retirement… that being said. More importantly, they should have their Retirement cash-fund in place, so they don’t have to sell the home to survive. Diverting all cash to Paying off debt is wise, however you can’t eat a house… investing their base amount of saving into a TFSA, (and maximizing all past contributions available). They should have a max contribution room of available to them of approx $72,000.00 into TFSA’S, add $916.00 per month total for couple into tfsa, balance into RRSP’S. Not counting any additional contributions.. into RRSP’s.. this should net ($580,000.00 at 12% growth) ($838,324.93 at 16% growth)by the time Mukesh is 65. Based on investing into a good growth stock Mutual fund. Highly diversified like CIBC NASDAQ INDEX(MUTF_CA:CIB520) or CIBC GLOBAL TECHNOLOGY(MUTF_CA:CIB496) and many others… these have beaten the S&P 500 Al the time… currently averaging 5yr avg 22.95% annual return and 18.24% annual return respectively. To make an easy calculation take current living expenses add 2% per year for inflation (age 53 to 65 is a factor of 1.2936066305) times this by 12 to get annual requirement. Divide result by .08 = NEST EGG REQUIRED. withdrawal 8% grow at 12% allows room for inflation… neber run out of Cash…
    Without any further deposits, At age 65 Mukesh would have the above amounts. He can pay off the mortgage… or continue to pay the mortgage because he would now have residual income of $4,416.00 per month if they only took out 8% annually, or they would have $6,556.00 per month again only 8% withdrawn per annum. growing at 12% or 16% is a given… plus any additional deposits… no problem. Growth stock mutual funds with long track records can not be beat…


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