Am I on track to pay off the mortgage in 10 years?

The current situation

Colleen and Keith Mountjoy, both 55, have been living and working in Peru for two years but plan to return to Vancouver in September. They would like to finish paying off their home—leased out until this fall—in 10 years so that they can retire. To meet that goal, they plan on actually increasing their remaining mortgage amount from $350,000 to $425,000 to pay for the construction of a two-bedroom basement suite that they will then rent out for $1,800 a month upon its completion. They will then put this additional income directly toward their house payments, on top of the $3,000 a month they’re already paying. “We plan to make $4,800 monthly payments toward the mortgage for the next 10 years,” says Keith.

Assuming that they can finish paying off their home in that time frame, the basement suite will then provide them with an extra source of income when they retire at 65, says Colleen. At that point, the Mountjoys will use the rental income to subsidize their love of adventure travel. “We’d love to see more of Asia and South America,” says Keith. “Being mortgage-free would go a long way toward ensuring we can finance that.”

The verdict

Provided they adhere to a strict payment schedule, building a basement rental suite will help the Mountjoys own their home outright sooner, says Tom Feigs, a money coach in Calgary. “I’m usually wary of people spending a lot of money on home renos. But the Mountjoys’ goal is to create an income stream through a basement suite. Such renos are much more positive for the bottom line.”

If the Mountjoys go ahead with their basement reno and increase their existing $350,000 mortgage to $425,000, the couple can have their home completely paid off by age 64—but only if they put all of the $1,800 monthly rental income from the basement suite toward their mortgage in addition to their regular $3,000 payments. By comparison, if the couple foregoes the reno and continues with their current mortgage payment plan, they won’t have it paid off until they’re both 68. “It can make sense to take on more mortgage debt—even if the couple is in their mid-50s, provided they aggressively pay it down,” says Feigs. “By age 65 they’ll have both a paid-off home as well as a healthy income stream to supplement retirement travel.”