Canadian homeowners have some decisions to make when they enter retirement.
Retirement is a time for celebration. But it’s also a time for reflection on your finances, especially the role your home plays in your complete financial picture. And a lot of that depends on if you’re carrying a mortgage into retirement with you.
Thanks in part to a hot housing market and high home prices, some Canadians will enter retirement with substantial debt. According to an Equifax studyOpens a new website in a new window from 2015, those over 65 are taking on debt at a significantly faster pace than the rest of the population and added nearly 5% to their debt in the first half of that year.
The good news is that there could be ways to effectively manage this debt leading up to and following retirement. You can get started by using effective financial planning and researching some of the tools available to help manage housing debt in retirement.
Prioritize debt repayment
Middle-aged Canadians often focus on building up their investments or helping children cover car or tuition payments while slowly paying down their mortgage. In some cases, this can result in people entering retirement with substantial investments but few “liquid” assets, like cash. It’s no reason to panic, but it may require some changes.
If you’re entering retirement with mortgage payments, it may be time to speak with a financial security advisor, who can help make your money work effectively by prioritizing debt payments.
Try an All-in-One account
A lot of Canadians have their mortgage, savings and investments spread across multiple accounts and financial institutions. That’s understandable, particularly in situations where savings and investments are split between individual and group plans.
Having your finances extended across a few institutions can make it harder to get a clear picture of your financial health. One way to bring clarity to your situation, and prioritize paying off debt, is to consider opening an All-in-One account.
If you’re not familiar with the concept, the All-in-One account – like the one offered by Solutions BankingTMOpens a new website in a new window – is a comprehensive financial account that can be used for managing your mortgage, savings, chequing, line of credit and emergency expense fund all in one place. By bringing these accounts together, you can get a clearer picture of your complete financial situation, including your debt. On top of that, by consolidating your finances, you may be able to reduce the amount of money you spend on banking fees and interest to help pay down your debt faster.
Although it depends where you live, in Canada we’re generally lucky to have the opportunity to buy larger homes with nice, big yards. And these bigger homes and properties are often necessary when a household includes parents, a few kids and some pets. But as retirement nears and the kids head off to school, jobs and homes of their own, the need for space can decline.
That may present Canadians entering retirement an opportunity to sell their home in favour of something smaller and cheaper. Doing so could make the difference between worrying about money and enjoying the kind of retirement you always dreamed about.
Renting after retirement
If you are planning to downsize, renting might also be a good option.
Instead of taking on another mortgage after selling your house, renting could allow you to take some of the money from the sale to pay off debts and other expenses. You could also invest it or use it to Travel.
Additionally, renting could help you avoid unexpected costs, since most maintenance expenses are typically covered by the landlord.
If you’re over age 55 and own a home, you may be eligible for a reverse mortgage. Unlike a regular mortgage, a reverse mortgage allows you to receive money using the equity in your home – without forcing you to sell. In fact, you may be able to borrow more than half the current value of your home, tax-free.[i]
A few factors are considered by a lender when you apply for a reverse mortgage, including the amount of equity you have in your home, its location, your age (and the age of your spouse, if applicable), your home’s current value and the day’s interest rates. Should you qualify, you can receive the money through a lump-sum payout, regular payments or some combination of the two.
Regardless of how you receive the money, a reverse mortgage could be a good way to free up cash for emergency expenses. That said, it’s important to note that interest rates for a reverse mortgage can be higher than a traditional mortgage and you may need to pay for a home appraisal and legal counsel to finalize the agreement.[ii] There may also be limitations to how much you receive and when it is received from a reverse mortgage, resulting in interest on funds you may or may not need.
Speak with a financial security advisor
A financial security advisor with Freedom 55 Financial can help you understand the challenges of entering retirement with a mortgage in tow. They can also help you build a financial strategy to address your specific needs in order to help you enjoy your retirement and help you worry less about finances.
[ii] For more on a reverse mortgage, see the federal government’s web page on the subject. “Reverse mortgages,” Financial Consumer Agency of Canada.
TMSolutions Banking is a trademark of Power Financial Corporation. Freedom 55 Financial and design are trademarks of London Life Insurance Company. National Bank of Canada is a licensed user of these trademarks.
Solutions Banking products and services are provided by National Bank of Canada.
The All-in-One is not available in the Yukon, Nunavut or Northwest Territories.