Your house, a retirement fund?

Your house, a retirement fund?

BET À DAY

I recently spoke to you about this dilemma that sometimes arises when you find yourself with a sum of money to grow: is it better to invest it for retirement or put it on his mortgage?

The rest of this question could be asked as follows: can his property be used to finance his old age? 

Normally, you should arrive at the end of your career with a paid-for house and a well-stocked woolen sock, so the two options explained above are not necessarily mutually exclusive.

But here it is there are still homeowners to pay off their mortgage on the run, then be satisfied with this effort, convinced that their real estate assets will be sufficient to meet their retirement needs.

I have bad news for them.

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Sell and Reduce

Nothing is impossible, mind you.

The most promising way is then to sell your residence, invest the capital to make it last as long as possible, and live on rent. 

To improve the chances of success, it is preferable to leave a hot real estate market to move to a more affordable region. The reverse path makes the plan hazardous.

The hardest part of this operation is to leave your house to go to an apartment. Investing the proceeds of the sale is also not easy when you have ignored this possibility all your life. It's not easy to change your religion at 65. 

So what are the other options?

Reverse mortgage and line of credit< /p>

If you want to live in your house, then you have to extract the dormant capital. 

Two ways allow it: the reverse mortgage and the home equity line of credit . I've covered this before, but let's come back to it in a new light.

The reverse mortgage consists of requesting a loan based on the value of your residence. Two institutions offer this product: HomeEquity Bank and Equitable Bank. The size of the loan, between 15% and 55% of the value of the property, will depend on the age of the client; the younger he is, the lower the amount to which he will have access. The loan and accrued interest will generally be repaid upon resale of the home or death. 

The mortgage line of credit allows you to draw up to 65% of the mortgage-free value of the building, with the only obligation to pay the interest each month. 

On will find that the amounts a homeowner can get from their property is only a fraction of its value. It's not a lot to finance a retirement.  

And in both cases, it is not free. With the reverse mortgage, the (fixed) interest rates approach 7%, excluding other fees. The home equity line of credit costs less, around 3.7%, and fluctuates according to the Bank of Canada's key rate.

Let's close the loop now. I have nothing against the idea of ‚Äč‚Äčaccelerating the repayment of his mortgage to save interest. If the retirement plan is based solely on the value of one's property, one must on the other hand expect to pay more interest to extract the capital.

It is probably better than nothing, but the strategy isn't great.

Improve your retirement

  • Spoil yourself in retirement with a mortgage margin? Why not ? Taking $25,000 from it to afford the trip of a lifetime at 68 is not a problem, as long as the other needs are met by savings and other income (QPP, PSV, retirement plan employer). 
  • The margin costs much less than the reverse mortgage, it is also more flexible, but you should ideally apply for it before you stop working . Above all, once the mortgage is fully repaid, you do not have to claim your discharge if you want to keep your margin. 
  • Those who choose the reverse mortgage generally do so out of spite, because the window for requesting the margin has closed. .jpg” alt=”Your house, a retirement fund? ” />