As retiring seniors approach a new stage in their lives, they are faced with a common question: How do I facilitate a financially comfortable retirement? In developing a financial plan, senior homeowners can leverage the equity in their home to help finance their retirement. Income is often reduced when on a pension and the equity in the home is often a major asset.
Financial Trends for Savvy Retirees
1. Staying in own home in retirement is a priority – Research conducted by IPOS in 2018, stated 93% of Canadian homeowners aged 65 and over say that staying in their own home in retirement is a priority
2. Savings and investments are low – Only 78% of retirees have savings and investments and 40% of those have less than $100,000 set aside. The downturn in 2009 has not been kind to many Canadians. Many had their careers changed before they planned. For almost 20% of seniors has resulted in having to obtain credit counselling.
3. Ontarians are relying on home prices for their retirement – A 2017 Ontario Securities Commission – OSC Poll found that 45% of homeowners aged 45 and older in Ontario who are still working are relying on rising home prices to fund their retirement
4. Many Retirees find themselves House Rich and Cash Poor – Many retirees in their elder years find themselves short of cash. The average age for a CHIP Reverse Mortgage is 72 years as reported Home Equity Bank
5. Retirees are faced with unexpected financial challenges – Many Retirees are faced with unexpected financial challenges such as: pre-mature career ending event, boomerang kids, grey divorce, eldercare for their own parents, etc.
6. Equifax reports those over 65 have declining credit quality – In 2017 Equifax reported that the only demographic with declining credit quality are those over 65
7. Seniors have substantial Consumer debt – For seniors, the average total debt is $29,452 per person with Consumer debt (excluding mortgages) of $15,493 per person
8. A recent trend for Delayed Retirement is the employment rate of individuals 55 and over has grown. From 1997 to 2010, it rose 30.5% to 39% for men and from 15.8% to 28.6% for women. In 2018 some people continue to work into their 70’s
9. Canadians need savings of $756,000 in retirement – According to a CIBC Poll, Canadians believe they need savings of $756,000 in retirement with up to 90% not having a formal plan to get there.
10. Sell and Stay Agreements – There is a growing trend for retirees to sell their home to investors and lease it back.
11. Todays Retirees are considered the sandwich generation – with aging parents and adult dependant children there is increased financial pressure in their families.
12. Over & Under Housed – Intergenerational home sharing between seniors & international students. In Ontario 75% of those over the age of 65 live in houses bigger than they need.
1. Eliminate debt payments
2. Purchase a new or right-sized home
3. Home renovations
4. Help a child or grandchild with education expenses
5. Help a child or grandchild with a down payment on a home
6. Tax free gift to children or grandchildren
7. Increase cash flow to improve lifestyle (e.g. vacation, new car)
8. Monthly living expenses
9. Wish to establish living inheritance
10. Pay for in-home care or medical expenses
11. Pay for an unexpected expense (e.g. home repairs, family emergency)
12. Financing to purchase new home
Common Methods to Obtain a Mortgage in Retirement
2. HELOC – Home Equity Line of Credit
a. Qualify based on your income and credit rating
b. Available from multiple banks and credit unions
3. Equity Financing based on the value of your Home
a. Qualify based on Age and Value of Home
b. Reverse Mortgages – Home Equity Bank and Equitable Bank
c. Private Lenders – High Interest Rates
Reverse Mortgages and a Home Equity Line of Credit are common financing options available for seniors that unlock the value in their home. Both options allow seniors to unlock equity in their home and can lead to a fulfilling retirement, however they have key differences that must be considered before deciding which alternative is best.
The Reverse Mortgage allows homeowners to access cash without making any payments until the home is sold. All interest payments are added to the final repayment, which is covered by the proceeds of the sale of the home. Homeowners in Canada over the age of 55 can secure up to 55% of their home’s value, regardless of the homeowner’s credit score. Interest rates are slightly higher for than HELOCs since there are no monthly payments.
This option is excellent for those who would like to receive cash up front without having to worry about making monthly interest payments.
Home Equity Line of Credit – HELOC
The HELOC allows homeowners to borrow from a predetermined credit limit, without having to pay back the principal until the end of the loan. The HELOC can account for up to 65% of the home’s value; however, the credit limit will depend on the homeowner’s credit evaluation and often their income. While the interest rate and credit limits are both flexible, interest only is paid on the principal at the end of each month. HELOCs typically have lower interest rates and provide more flexibility.
The HELOC is well suited for homeowners who are confident in their ability to pay down debt and have different cash needs month to month.
For a deeper look at Real Estate Financing for Seniors, visit our blog at www.GerardBuckley.ca
Gerard Buckley, Seniors Mortgage Professional and Certified Reverse Mortgage Specialist at Mortgage Wellness, has offices is in Collingwood, Owen Sound and Toronto and has access to over 70 specialized lenders.
Please Call Gerard at 705-532-1182 for a complimentary consultation.