Financial manager Jim Rawson is starting to follow his own mortgage advice, forgoing small pleasures to pay down the debt on his 1888 Victorian row house in Toronto's Cabbagetown.
Almost a year ago, the veteran mortgage manager decided to ditch his twice-a-day latte habit at the Starbucks coffee shop around the corner from his offices at Invis, one of Canada's largest mortgage brokerage firms. "I would go to Starbucks every morning to get a latte and most often, it was twice a day.
"I thought this was nuts. I was spending at least $10 a day. I went out and bought a cappuccino maker for $750," says Rawson, who now makes his coffee at home before heading to his job as regional manager at Invis, which has more than 800 mortgage consultants across the country.
Rawson has lived in five homes in Toronto during the past three decades, starting with an Edwardian-inspired semi-detached home he bought for $106,000 in Leslieville, well before it was branded an up-and-coming neighbourhood. He sold it for $350,000, buying three other homes, before settling into the Victorian row house four years ago.
Rawson paid $850,000 for the row unit, putting down a 25 per cent down payment amortized over seven years.
He admits that once in a while, when it's a sunny weekend, there is time to sit in the sun with a green tea latte at his neighbourhood's Starbucks. Now it's more of a treat than a daily routine.
Not that he's not giving any thought to pulling up roots and selling again, instead Rawson is looking at borrowing $50,000 to renovate his 120-year-old home.
"It is not necessarily bad to go into retirement with a mortgage," says Rawson, who has been a broker since 1986, gradually paying down his mortgage and reducing his amortization while moving. "It is a no-brainer and most people make biweekly payments, speeding up the payment schedule.
"But that is where it usually stops," says Rawson.
Our parents were more careful about saving money, although most of them stuck with their fixed payment fee, retiring the mortgage after 25 years, he says.
"Today, boomers think about paying down the mortgage, but they want to enjoy their life, maybe take a trip to India."
It's easy to nip into a mortgage, give up a $50 dinner out or a latte habit and put it toward a lump-sum payment once a year, says Rawson. "It's also easy to round up mortgage payments, say from $975 to $1,000. You never notice the money and it makes a difference."
Based on a $200,000 five-year mortgage borrowed at a rate of 5.45 per cent over 25 years, giving up small indulgences has a big payback. Consider that skipping that $50 dinner or an equivalent in hot lattes each month will save $14,987 in interest over the life of the mortgage, allowing you to write it off two years early.
Data keepers at Canada Mortgage and Housing Corporation agree Canadians are ready to take some accelerated steps in paying off their mortgage. A CMHC survey has found 75 per cent of recent buyers intend to pay off their mortgage sooner, but only 33 per cent actually made a lump-sum payment.
It also seems Canadians tend to move every 3.5 years, says Rawson, taking out a new mortgage, sometimes with a lower amortization period. The lower amortization period is smart, says Rawson, who says he doesn't miss his Starbucks fix. "I get just as much caffeine in my system and it is cheaper."
-- Canwest News Service
