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Are you working towards building a secure financial future? Look, we’re not going to be young forever, so in order to have the best possible future, you need to be smart about your plans for retirement.
As much as you can put away towards your retirement, one expense that has the potential to take a huge toll on your earnings is your mortgage. Make unwise decisions about your mortgage, and let’s just say you’ll be paying the price well into your golden years.
That being said, in order to plan smart for your retirement, you need to realise how closely linked your mortgage choices are to it. So, in this article, we’re going to dive into how making smart mortgage choices is going to work hand in hand with your retirement planning.
What are the risks of making poor decisions with your mortgage?
Buying a home should be a way of setting you up for retirement. Unfortunately, if you haven’t paid off your mortgage by the time you hit retirement, you’re still going to be paying a huge chunk of cash until it’s done. This reality has led to a significant amount of Australians working well into their retirement age or accepting their mortgage debt as is.
What’s the cause of this shift? Many people choose to buy a home or can only afford to buy one later on in their lives. Previously, many homeowners purchased their homes in their late twenties or early thirties, but now, people are only buying when they’re older. As homeowners get older and the cost of living and homes increase, they’ll require bigger mortgages which run the risk of being “forever loans”. This negatively impacts many people’s financial security in the future when they retire.
What are some smart mortgage choices?
Let’s be clear: investing in property is a smart move, but when the housing market is so high that you can only afford to buy when you’re older, how can you work towards a stable retirement? No one said its going to be easy, but you need to make smart mortgage choices.
1. Think about a mortgage as part of your retirement plan
Owning your own home and not having to worry about paying a mortgage when you stop working one day is a huge benefit. This gives you security in knowing you’ll have a roof over your head and not a list of debt. Not only that but having this asset will allow you to sell one day should you ever need it – you can look at it like a forced savings account but it’s in the form of a tangible asset. People see the money in their bank accounts and in their investments, but be assured that owning your own home is just as valuable.
2. Work with a good mortgage broker
It’s not impossible to get a mortgage at a good rate all by yourself, but hiring the right mortgage broker can set you up with multiple mortgage options. Mortgage brokers will have contacts and relationships with different lenders and can use leverage to try and get you the best deal.
3. Choose the right mortgage
There are various lenders and types of mortgages available to help you buy your home. Working with a broker will help you get your options, but choosing a provider and mortgage is up to you. It’s important to be aware of the different types of mortgages so you can make the choice that is best suited for you:
- Fixed-rate mortgage - your interest rate is locked for a specified period, and your monthly payments remain the same regardless of whether the rates go up or down
- Variable rate mortgage - your interest rate can change during the lifespan of your loan
- Split loan - you can divide your mortgage into different sections, which helps protect you from rate hikes, and you can enjoy flexible features like extra repayments if need be
4. Stick to your budget
When you’re house shopping, everything seems thrilling and new. It can be easy to look at the houses on the show and fall in love with one that seems just out of your budget. You might think that it won’t do a lot of damage, but if the interest rates suddenly spike, it won’t seem like you’re paying a few thousand dollars over budget. We suggest working closely with an accountant to decide on what you can afford and then stick to that budget.
Final Thoughts
Australians should think of their mortgage as part of their retirement plan – like every mortgage payment that comes off is like you’re putting cash towards your future. Aside from this mentality, you also need to be wise when it comes to making decisions about your mortgage, you don’t want to be paying for it when you should be enjoying retirement.
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