Rising interest rates make paying off your mortgage a preretirement priority

To future-proof your retirement, pay off your mortgage years before leaving the work force.

Understandably, retirement prep is focused almost exclusively on saving and investing. A little more attention is also being paid these days to the lifestyle side of retirement, specifically how to feel good both mentally and physically.

What’s missing is retirement risk reduction – future-proofing, in other words.

A timely example of retirement risk is carrying a mortgage and having to renew it at substantially higher rates. Homeowners of all ages are vulnerable to the utterly unexpected rise in mortgage rates this year, but none more than retirees.

In your working years, a jump in your mortgage payments of several hundred dollars a month is brutal. But you at least have the potential to offset these higher costs with bonuses, raises, promotions and new jobs with higher pay.

Retirees have less scope for offsetting higher living costs without chopping their spending. Beyond working, what are you going to do? Invest more aggressively? Buy lottery tickets?

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I wrote earlier this year about how retirees with mortgages and other debt need a lot more income than debt-free people to cover monthly payments. Higher mortgage costs raise the threat level of carrying debt in retirement at least one notch.

One reason is the risk that mortgages will be renewed at higher rates for years to come. Our entire interest rate paradigm has been shaken in 2026. The economy is struggling in a way that calls for lower interest rates, yet persistent inflation and a volatile bond market are pushing rates higher.

Mortgage rates follow the direction of bond interest rates, which are known as bond yields. Yields surged this year as a result of financial market worries that governments are borrowing too much, and that AI companies and other corporate players are doing likewise. When bond prices fall as a result of selling by investors, bond yields rise.

Rates on the formerly popular three-year fixed mortgage have risen more than half a percentage point this year, from a low of roughly 3.9 per cent to about 4.6 per cent. As noted in a recent Globe and Mail story, borrowers are gravitating to the cheaper costs of variable-rate mortgages.

But if inflation persists, then pressure builds for the Bank of Canada to raise its benchmark overnight rate in the months ahead. We’ve seen this show before – in the inflationary 2022-23 period, when the central bank cranked rates steadily higher and dragged the cost of variable rate mortgages along for the ride.

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Another reason to avoid carrying a mortgage in retirement right now has to do with emotions and mindset. Retirement is supposed to be a time of life where you have less stress. Whether that’s true or not depends a lot on your health, and the health of aged parents if you have them.

But work is a big stressor for many people and retirement takes that off the table. One way to backfill that lost stress is to have a mortgage that you know will get more expensive on renewal.

Sometimes, you can’t avoid retiring with a mortgage. A lot has to do with your career arc, your durability in the workplace and emergencies that may have required you to refinance your mortgage to pay off other debts.

But the amount of mortgage debt held by retirees is growing in a way that suggests a mortgage-free retirement isn’t prioritized like it was in previous generations. Statistics Canada numbers show mortgage liabilities for people aged 65 and up have risen 10 per cent annually on an average from the last quarter of 2010 to the end of 2024.

In the 2026 Fidelity Retirement Report, 22 per cent of retirees surveyed had a mortgage and just 46 per cent of them expected to have their mortgages paid off in less than 10 years.

Mortgage rates were low and manageable for much of the past decade and a half, but that’s over. Pay your mortgage off before retirement and you can watch the rate drama ahead as a disinterested bystander.

Rob Carrick is a personal finance expert and former Globe and Mail staff columnist.