Confessions of a debtophone : it’s tough not to be seduced by the low, low rates

Posted on 08. Jun, 2010 by in General

William Hanley, Financial Post · Saturday, Jun. 5, 2010

Our friends — we’ll call them Bob and Ann — are semi-retiring to southwestern Ontario, selling up their nice house in Toronto, paying off their mortgage and coming out with a lot of cash in hand after buying a modest home in their new city of choice. They are in their 60s and being debt-free is a priority for them.

But Bob and Ann are not necessarily typical of the early Boomer generation, with evidence mounting that many people are heading into debt-defying retirements or working longer to pay off mortgages, lines of credit, credit cards and other obligations. An Investors Group survey in March found that almost one in three Canadians will be carrying a mortgage into retirement and almost two in three will have debts of one kind or another.

To me, the later-in-life debtophobe, those statistics are surprising. I believe that ridding oneself of debts is the primary goal of getting ready for older age, that being beholden financially to no one is the bedrock of a secure, comfortable retirement. It’s simple: Owe nuthin’.

And yet, a sign in a trust company office window caught my eye the other day: “Mortgage rate 2.20%.” I didn’t go inside to get the details, but I presume that was a floating-rate deal. Later that day, the Bank of Montreal announced that its five-year special-rate closed mortgage was dropping to 4.25%, even as the Bank of Canada just announced it was raising its benchmark lending rate by 25 basis points to 0.5%.

With rates like these, no wonder more people — retirees even — are debt-defying. From time to time, I find myself daydreaming about getting my hands on some of that almost-free money and buying … that condo in Hawaii … that round-the-world cruise … dinner for two at Ruth’s Chris Steak House with a nice bottle of Merlot.

With such low, low rates, it seems debt isn’t what it used to be. And though rates will be on the rise at some point, today’s borrowers and spenders are not like those of my parents’ generation, those folks forged in the icy blast furnace of the Great Depression of the 1930s.

The indebted folks surveyed by the Investors Group were heading into retirement carrying debts that averaged just $25,000. That would cost about $100 a month to service at BMO’s rate of 4.25%.

Such numbers are almost inconsequential to people used to juggling payments on half-a-dozen credit cards and a mansion-sized mortgage.

Nevertheless, I found myself recently quietly counselling retired friends that they might wish to take out a mortgage to buy the midtown condo they desired after selling their house in the suburbs. After all, a mortgage of $100,000 at present rates would cost them only about $400 a month. And they could work at paying it down quickly with the 10 pensions they have between them.

Coming from my debtophobe’s lips, this seemed like heresy. But it was an option worth considering to get what they wanted.

They chose to buy a condo they liked in a suburban location they can live with, forgoing a mortgage and, like our friends moving to southwestern Ontario, coming out with a nice chunk of cash after the sale of their house.

They plan to use the cash for their holiday mad money over the coming years, choosing to buy lunch in the south of France rather than making mortgage payments in perpetuity.

They’re more comfortable doing that. And that’s the key. It’s knowing what you’re comfortable with.

Despite the lure of cheap-as-dirt money, my friends and I find peace of mind in staying debt-free. We made mortgage payments for almost 30 years, and it did seem like they would never, ever end. But, mercifully, they did. Everything is squared away now. We really don’t wish to go to that particular part of the financial outback again.

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