Paying off mortgage until the rest of your life? That may be not so bad, actually

Today’s borrowing costs are so low and home prices growth is so fast, that home ownership has changed its meaning.

The main thing is that we’ve changed our attitude to mortgage debts. The times when people did everything they could to pay it off as fast as possible are over. They were replaced by an acceptance of long-term borrowing, often well into retirement and even for the rest of their lives. Homeowners often prefer to refinance mortgages and reset the clock.

In addition to it, retired homeowners may use reverse mortgages to help their grown kids pushed out of the market, or to stay in their houses longer without downsizing. According to housing experts, it makes sense that they would benefit from that tax-free equity on a principal residence.

Many people consider it a money box, as home prices are so high. People are often comfortable with paying 2-3% interest on a $1.8-million house. If they refinance, take out their money and re-invest in something else, they can make even more.

Moreover, unlike the previous generation, the younger ones tend to have a mortgage helper.

Besides, the younger generation didn’t have to live through 12-18% interest rates of the 1980s. They are not worried about retiring with a mortgage not fully paid off. Many prefer having a higher cash flow than a lower debt.

Duncan Maclennan, economist and professor at the University of Glasgow, has studied real estate markets in Canada, the U.K. and Australia. In his opinion, governments have an outdated view of how home ownership functions. They think it’s still about getting onto the first step of the property ladder. However, it’s a serious challenge now that home ownership is age-specific, or for those who have parental financial support for down payments. As soon as people get onto the ladder, their desire for more housing than they need goes up.

“Initially, home ownership was about encouraging people to save by mortgages. Today, it’s a speculation system, and entering it creates wealth at significant rates,” – Prof. Maclennan noted.

He points to a tax structure that motivates real estate investment, and an older demographic that is using their equity.

“The main speculators in Canadian real estate markets are in fact the Canadians age 50+ when it comes to having extra house.”

Steve Pomeroy, who has studied real estate for almost 40 years, says about two-thirds of Canadians are homeowners and of those, three out of five have mortgages.

“There was a war-time way of thinking when it was important to save as much as you could, without relying on credit. People didn’t want to take on more debt. In my opinion, with the current values, we have a much stronger tolerance for debt. If you have a property in Vancouver, your mortgage amount is $500,000 and the property’s worth $2-million, you probably don’t care. You sell, your home pays off the mortgage and you have plenty left over.”


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