A generation ago, the idea of Canadians carrying a mortgage into retirement was largely seen as unthinkable. However, recent trends indicate that this is increasingly becoming the norm. A survey conducted by Royal LePage revealed that among 1,626 Canadians, a mere two percent expect to retire in 2025, with three percent aiming for 2026. Notably, approximately one-third of these individuals, around 29 percent, anticipate that they will continue to pay off their mortgage during retirement. Real estate expert Shawn Zigelstein attributes this change to a cultural shift where Canadians are more willing to manage debt, potentially due to extended working years or having access to greater disposable income, enabling them to handle their financial responsibilities differently than previous generations.
Buying homes later in life also contributes to this phenomenon, according to financial planner Jason Evans. With many Canadians opting for 30-year amortization schedules, mortgage repayments now extend into what used to be considered traditional retirement years. This shift means that more individuals find themselves in a position where they are approaching retirement while still managing significant mortgage obligations. This situation poses a variety of challenges, particularly for those who now form a core part of Evans’ clientele: retirees exploring options to mitigate their mortgage burdens. While a mortgage during retirement is certainly feasible, it comes with its own set of considerations and pitfalls.
One significant consideration is the decision regarding when to start drawing from the Canada Pension Plan (CPP). Evans suggests that while there may be a temptation for some seniors to begin withdrawals early for improved cash flow, this strategy may not be the most beneficial in the long run. By delaying CPP benefits until age 70, retirees may secure higher monthly payments, thus increasing their overall income for retirement. Furthermore, the reliance on investment withdrawals to manage ongoing mortgage payments can become precarious, especially in volatile markets. A downturn could necessitate withdrawing funds at a loss, potentially undermining the financial stability of retirees.
The generational wealth gap presents additional complexities for Baby Boomers, many of whom possess substantial real estate assets but lack liquid cash. Some retirees may feel financially secure due to their high-value homes, which they purchased decades ago but might have historically low incomes. This imbalance creates a challenge when it comes time to fund retirement living expenses while still managing a mortgage. A potential solution could lie in utilizing a home equity line of credit (HELOC) or a reverse mortgage. However, experts urge caution with a HELOC, as it may not be advisable for older individuals who lack supplemental income necessary to cover interest payments.
For seniors, a reverse mortgage offers a unique financial opportunity, allowing them to access cash based on their home equity without monthly payment obligations. This type of mortgage postpones repayment until the homeowner passes away or sells the house, potentially relieving retirees of monthly financial strain. By replacing a conventional mortgage that necessitates regular payments with a reverse mortgage, retirees can free up their monthly income for other living expenses. This financial maneuver can provide greater flexibility in retirement planning, offering a more comfortable lifestyle without the burden of ongoing mortgage payments.
Finally, many retirees are grappling with the decision of whether or not to downsize post-retirement. According to the Royal LePage report, 47 percent of respondents indicated that they do not plan to downsize within two years of retiring, while 44 percent are considering the option. Among those looking to downsize, condominiums are the most favored choice. The declining price of condominiums in Canada’s real estate market could make downsizing more appealing, although finding suitable, affordable housing remains a challenge. As Evans notes, moving may be necessary to free up significant equity; thus, retirees should carefully consider the current market and explore various housing options that align with their retirement plans.
