More Older Canadians Have Mortgages

Between 2016 and 2021 the number of Canadians with a mortgage over the age of 65 increased. With the Bank of Canada raising the interest rate over the past year to curb inflation, these numbers may continue to rise.

Conventional wisdom advises entering retirement debt-free. However, this view is beginning to shift. While there are drawbacks to paying a mortgage after 65, in some cases, there can also be benefits.

The Pros

There are many reasons someone may decide to either keep paying off an existing mortgage into retirement, or opt for a reverse mortgage.

Staying At Home Longer

Many Canadians are choosing to age in place, staying in their homes throughout their golden years instead of downsizing. For some, this means continuing to pay a mortgage.

Boosting Income

Some people choose to keep an existing mortgage or take on a reverse mortgage in order to invest their money elsewhere, providing cash flow in retirement. While homes prices typically appreciate over time, historically the return on investment isn’t as high when compared with a well-managed portfolio of stocks and bonds. Also, stocks and bonds can be sold piecemeal as financial needs arise.

Using money to purchase an investment property and rent it out is another way to ensure income in retirement, as long as individuals are prepared for the responsibilities of being a landlord.

Helping Adult Children

Since the costs of getting into the real estate market have gone up significantly in the past decade, more older Canadians are helping their adult children with down payments.

Opting for a reverse mortgage or paying a current contract down more slowly can help free up funds to help the next generation.

The Cons

Having a mortgage in retirement isn’t for everyone, and there are drawbacks.

Higher Interest Rates Mean Higher Expenses

Canadians with variable rate mortgages, and those who renewed their fixed rate mortgages in the past year, likely felt the discomfort of higher interest rates. Escalating mortgage rates can hurt anyone, but when living on a fixed income, they can be especially hard to manage.

Unstable Financial Markets

The last few years have led to more uncertainty in the financial markets. Talk of a recession is ongoing as markets experience volatility. If you need to generate cash flow in retirement, it’s best to be cautious when considering stocks and bonds to supplement income.

Reduced Estate

Interest on a mortgage does add up over time and can depreciate the value of an estate.

It’s also important to note that any debt owed, including a mortgage, will be deducted from the estate after death. If you choose to have a mortgage now, you may have less money to pass on to your loved ones.

What Type of Mortgage is Best After Retirement?

Finding the right mortgage for you depends on your unique financial and life circumstances. Generally, mortgages with fixed rates are good for retirees because the interest remains stable for the term in your contract. However, if interest rates come down in the near future, you’ll be paying a higher rate for longer.

If you want to pay off your mortgage faster, or believe interest rates will come down in the next year or two, you may prefer the flexibility of a variable rate.

For those who already own their own homes, you may want to consider a reverse mortgage if you need to access funds. Reverse mortgages do typically come with higher interest rates, but there’s no set repayment schedule.

Still have questions, or want to find out more? Call us today at 1-855-695-9250.