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The Growing Number of People Not Paying Off Their Home Before Retirement

You can beat these odds with education, a smart strategy, and an open mind to new ideas. And that’s where I can help.

Have you ever thought about how you would pay off your mortgage once you’ve retired? Or, as I think many people do, maybe you assume you’ll have paid off your home by then?

Unfortunately, this is no longer the norm, with a 2018 Grattan Institute report showing that less people are owning their home outright at retirement age (The Grattan Institute is an independent not-for-profit producing public policy recommendations).

A key stat in the report found that in 1995, 72% of Australians aged 55-64 (the years prior to retirement) owned their home outright; this had plunged to 42% by 2015-2016. That’s a significant drop – 30% in just 20 years, in fact, or a generation.

This will leave us with more 60 and 70-somethings with mortgage commitments, and with more retirees of the future likely to be renters.

What’s going on?

In a nutshell, it’s a lot harder to pay off mortgages today than it was 35 years ago.

Mortgage debts have grown faster than house prices and income over the last few decades. A report by the Australian Housing and Urban Research Institute (a national independent research network), revealed that between 1987 and 2015, the mortgage debt in older mortgagors (those aged 55+) blew out by 600%. In this same period, house prices tripled, while income growth only doubled. The numbers clearly don’t add up!

The report also looked at this group’s mortgage debt-to-income ratio during this same period – that’s your debt divided by your gross income. On average, it tripled, from 71% to 211%, meaning that there was a much higher risk of being unable to make repayments.

This leaves a growing proportion of retirees who are retiring without paying off their own home – let alone owning an investment property for retirement.

And there are some pretty serious implications from all this.

The report reveals that when older mortgagors have trouble paying off their home loan, their mental health suffers.

A difference was found in their SF-36 mental health scores, which is a short-form survey on health and wellbeing using quality of life measures. Males scores were reduced by around 2 points and females around 4 points; to give you an idea, these effects are on par with those of a long-term health condition.

On top of the stress and lower quality of life this demographic experiences, there are other consequences to consider too – things like being forced to sell their family homes and move to cheaper areas. While this would unlock equity*, it would mean moving to an unfamiliar area later in life where they don’t have a connection to the community.

*Wondering what it means to unlock equity? Equity is the difference between the current market value of your property and the amount remaining on your home loan. A bank will let you use some of this equity to top up a current home loan, fund a reno, or even buy a car.

My tip? Start thinking about retirement now.

I can share proven strategies to help you pay off your mortgage much sooner than you may think is possible.

Whilst your income might not be enough to pay off your home loan before retirement, utilising leverage and compounding growth by investing in an additional property could see you build enough equity in the second property to pay off your home loan sooner.

So if you’re ready to start building your long-term wealth, I’m here to help with the research and knowledge needed to get you started. Keen to kick off right now? Check out the next article or start a chat.

Do you assume that you’ll have your home paid off before retirement? A 2018 Grattan Institute report has shown this is becoming far less common, with 30% fewer Australians aged 55-64 owning a home in 2015/16 compared to 1995 – and it’s affecting their mental health and their ability to enjoy their life in retirement.

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