Canadian’s won’t be retiring their mortgage debt anytime soon, according to a recent survey by the Bank of Montreal. Data shows that more than half (51%) of Canadian homeowners plan to carry their mortgage into their retirement. But there’s more to this figure than meets the eye, says Phil Soper, chief executive of Royal LePage Real Estate Services. Soper argues that changing demographics and approaches to money management are what’s causing this increase, rather than just increased consumer debt.
Seniors and Housing Trends
Retirement used to be all about downsizing, but that’s hardly the case any longer. A new trend, one which was not considered by the industry before, see’s seniors moving into more expensive upscale homes following their retirement. And that isn’t necessarily a bad thing. “People are living longer, working longer and making real estate plans longer or further into their lives,” explained Soper in a recent Financial Post article. “People are more sophisticated in their approach to personal finance today than the previous generation.”
On the flip side, low Canadian mortgage rates could be causing some seniors to take unnecessary risks in regards to their finances. With mortgage rates at an all-time low, many elderly Canadians may be miscalculating the overall cost of their new home purchase. “Low interest rates are acting like a double-edged sword causing people to take on more debt than they would have in the past,” explains Robb Nelson, CEO of FamilyLending.ca. “As such, people could end up working longer and building less equity into their home.”
Should You Carry Debt into Retirement?
Carrying debt into retirement can be a threat to financial security, especially if the load is extremely large. According to Tino Di Vito, head of the BMO Retirement Institute, Canadians need about 70% of their pre-retirement income to maintain the same kind of lifestyle they’re used to. And that’s assuming that larger expenses, such as a mortgage, are already taken care of.
As housing prices continue to rise in hot markets like Toronto and Vancouver, it’s hard to imagine how some seniors will be able to survive and manage a mortgage. According to the Canadian Real Estate Association, the average home price is close to $373,000; in Vancouver, the average sale price in April topped $735,000. No surprisingly, almost 60% of B.C. homeowners are expected to carry their mortgage debt into retirement.
Understanding Your Asset
The easiest way to manage mortgage debt as you edge into retirement is to accelerate your payments. Cash flow is king in any retirement plan, so make sure you take the time to crunch numbers using a mortgage calculator. Of course, paying of your debt as quickly as possible is always the best option, but it’s not the only one. Provided your mortgage relates to everything else in your financial plan, you shouldn’t run into any major setbacks. Consider the following:
- Putting money into your RRSP makes sense when you have significant income and your tax rate is higher than it will be in retirement. The money that’s generated in your tax return can than be applied to your mortgage as a lump sump.
When it comes to managing your mortgage during retirement, planning is key. For more information on current mortgage rates, or to discuss your refinancing options with a professional, contact a seasoned mortgage broker.
“A comfortable retirement is always attainable,” says Nelson. “Sometimes it just takes a little longer to achieve.”