Insights & advice
5 things to consider when retiring with a mortgage in Canada
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 debtOpens a new website in a new window - Opens in a new window.
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 retiring with lots of investments but few “liquid” assets, like cash. It’s no reason to panic, but it may require some changes.
If you’re retiring with mortgage payments, it may be time to speak with a financial advisor, who can help make your money work effectively by prioritizing debt payments.
If you’re over 55 and own a home, you may be eligible for a reverse mortgage. Unlike a regular mortgage, a reverse mortgage allows you to access 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.Footnote 1
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 current 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 access 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 lawyer to finalize the agreement.Footnote 2 There may also be limitations to how much you receive and when you can get it from a reverse mortgage, resulting in interest on funds you may or may not need.
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. Downsizing 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.
Speak with an advisor
An advisor can help you understand the challenges of entering retirement with a mortgage . 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.