Your daughter’s in college. Your adopted son and his partner have a family of their own.
Friends and family are asking, do you really need all that space for yourselves?
What a lifestyle dilemma!
Do You or Don’t You Downsize?
You may be reassured to know almost half of Canadian baby boomers old enough to retire are making no plans to downsize.
A 2018 Ipsos survey of 2,501 Canadians 55 plus reported:
48% weren’t planning a move anytime soon
34% might move in the next five years
39% are skeptical it will save money
27% of downsizers spent more than expected
34% of potential downsizers want to move elsewhere
50% of downsizers changed cities
93% of those staying put are happy where they are
91% of downsizers are happy they moved.
That would leave anyone sitting on the fence.
Aging researchers were surprised to find the same results.
- Statistics Canada says seniors are less likely than most Canadians to move.
- 4.7% of Canadians over 75 relocated in 2016 — compared to 13% of other Canadians.
- Most downsizers were separated, widowed or divorced.
Ryerson’s National Institute on Ageing says 91% and the 2020 Generational Real Estate Trends Report: Aging in Place reports 86% of seniors plan to stay where they are, as long as they can.
When Leger canvassed 1,000 Canadian baby boomers (born from 1946 to 1964), 17% planned to buy a new home by 2023. Only 48% expected to downsize for their next purchase. Yet, 63% of Ontarians admitted to researchers they can’t afford to retire in their own community.
You’re in good company.
Ontario’s first baby boomers turned 65 in 2011.
One in four Canadians could be a senior by 2031. With fewer young people to pay for housing, transportation or taxes, seniors are becoming more self reliant.
CHIP, Canada’s reverse mortgage provider, looked at why baby boomers downsize and found seven reasons:
- Pay off a mortgage or debt.
- Reduce heat, hydro or taxes.
- Stop playing house and with the yardwork, too.
- Live closer to loved ones.
- Snowbirding — who needs a big house when you’re rarely there?
- Finding extra cash for retirement.
- Too much square footage.
Axess Law can’t help you decide, but our real estate lawyers in Ontario can do all the legal paperwork to refinance your mortgage if you make a move after 55.
When to Buy
Boomer & Echo magazine landed on some interesting pros and cons of owning after retirement.
⦁ Fewer costs, more money to invest
⦁ Taking advantage of the market to cash in and build equity
⦁ Home equity can fund a line of credit or income from a reverse mortgage
⦁ Leaving your home to beneficiaries
⦁ Decorate or renovate to your own tastes
⦁ Predictability — no landlord or rent increases
- Buying a new home ties up your money
- Real estate prices could be at their highest when you buy
- Repairs and maintenance can eat into your savings — who needs the extra work?
- Property taxes and homeowners’ insurance just keep going it
- How long will you stay in your new home before you move again?
- You could use your savings to rent or make inter vivos (while you’re alive) gifts to beneficiaries
- Selling when you’re older could be taxing (but then, when isn’t it?)
If your new home is in your old neighbourhood, you have the advantage of staying close to friends and familiar places. Ontario seniors who’ve moved away say they struggled to fit into new communities and lifestyles.
After real estate commissions, legal fees, land transfer taxes and buying new furniture to fit a smaller place, most didn’t actually manage to bank much either. (Although the clever ones used the extra cash to install conveniences, like a fenced-in dog run, ground-floor laundry room and handy stair lift.)
Without all the space you’re used to, will you still get to invite friends in for dinner, have family stay over Christmas break or hang out with the guys in the “man cave”?
Could You Rent?
Renting has its advantages — no unexpected furnace repairs or fence to replace every 10 years. The landlord does the painting and yard maintenance. Someone else pays to install all the conveniences you may need, like an elevator, shower grab bar or wheelchair ramp.
Travel the World
You can move around and see more of Canada when you’re not tied down by a mortgage or home responsibilities. Most senior homeowners have up to a third of their total net worth tied up in their homes.
Fewer Financial Worries
Of course, you could travel without selling your home. But if the extra cash from not paying homeowner insurance or not worrying about who’s taking care of your lawn would make all the difference, it could be worth it.
No Waiting for Your Home to Sell
You can break a lease, but can you leave a mortgage as quickly? The profits you make selling your home could help out your daughter with her education or son and his partner with their own kids.
Less Responsibility, Fewer Choices
On the downside, you’ll have to put up with having less say in how your home looks. And if the landlord falls down on the job, you could wait a long time to repair closet doors that come off their tracks or leaky faucets. You’ll be paying rent again, something you left behind years ago.
Will they even take Fido?
Investing, The Other Option
When you free up your money by not having a mortgage, a world of investment opportunities (like buying an income property with the cash from selling) opens up.
They’re not without hazards. Moneysense.ca points out renting too early can expose you to the instability of frequent moves or rent increases. Their editors suggest leaving renting until you reach at least 80 or 85.
What if you downsized to a cheaper townhouse or tried life lease vs condo options instead and used the “found money” to invest? Instead of risking using up your nest egg on a good time, the equity from the sale of your downsized home could finance any costly medical needs you may have later (much later) in life.
Moneysense.ca looks at the math this way:
$1 million from the sale of your home today
invested at 4% in blue chip stocks,
yields $40,000 annually,
for rent, living expenses and vacations
invested in a $750,000 downsized property,
with $250,000 left to play the markets,
equals $10,000 annually,
to spend anyway you want.
Getting a Mortgage After 65
While you’re thinking long term, downsizing could get you that easy-to-maintain backyard for relaxing BBQs with the family. Resort-style condos can have weight rooms, swimming pools or groomed trails for long walks and cross-country skiing.
Thinking about it, maybe getting a new mortgage isn’t such a bad idea after all. You could port the one you have. Or sell outright and pay cash for a less expensive pad.
Age is No Obstacle
If you still need a mortgage after all that, age isn’t any obstacle. Your work and government pensions are steady sources of income. Self-employment, commissions, bonuses or investments are all on the table. If you own other property with equity room, lenders will look at that as well.
Don’t fuss about stress tests. Credit unions and private lenders don’t require stress tests and are open to lending to seniors.
Using RRSPs for Down Payments
As long as you haven’t hit the magic 71 number, you and your spouse or common law partner can still withdraw $35,000 each from RRSPs for a mortgage down payment. Depending on your age and financial objectives, you may just have to repay it sooner.
The Home Buyers’ Plan requires you to start making payments the second year after you withdraw your funds. You have up to 15 years to repay — you can make regular monthly payments or, if you want, repay your RRSP in a lump sum.
Once you reach 71, repayments are no longer possible. So you will need to either:
- repay your RRSP in full
- make a partial repayment and include the balance on your income tax return
- or make no payments that year and count it as income.
Before you withdraw funds from a RRSP, talk to a tax accountant or financial advisor about the best strategy for minimizing your taxes. They can advise if RRSP mortgages or withdrawals have a place in your financial plan.
Taking Out Private Mortgages (Ontario)
When you’re between houses, getting bridge financing by taking out private mortgages can keep a mortgage deal alive. Private mortgage lenders charge more interest and may write shorter terms — although some do offer traditional, 25-year amortizations. Go online or ask a mortgage broker if a private mortgage could be for you.
How Reverse Mortgages Work
Reverse mortgages in Ontario use the equity in your home to finance home repairs, vacations or a cottage at the lake. Provided your home is fully paid for, you can borrow up to 55% of its value to use anyway you like.
Never make mortgage or loan payments until you sell or die. Your mortgage lender will sell your home to recoup their investment.You pay only home insurance, property taxes and maintenance costs. Your estate repays the mortgage loan and interest if you die. Repayment timelines are strict — be prepared to move quickly if you or your estate must settle with your lender..
Axess Law works with trusted mortgage partners to fund your retirement ambitions through a reverse mortgage. Ask us about it.
Who Pays Debts After You Die
Mortgages that are outstanding after you die get rolled into debts for your estate trustee to manage. If your spouse or common law partner is a joint tenant on title to the matrimonial or family home, they can continue to pay the mortgage and take you off the legal title by filing a survivorship application for Ontario.
Axess Law can write a Will to preserve a matrimonial home or family residence and ensure your spouse is on the title to properties.
Planning for Downsizing
For the last word in downsizing, Graying With Grace recommends you:
Realtors who have senior clients agree: downsizing is stressful. Take your time. You didn’t get where you are by being impulsive. Act deliberately and confidently.
Make a plan.
Start looking for housing types, neighbourhoods or communities where you might like to live. It helps to have something to show a realtor. Get out a map and take a spin by car or bus to stake out your new habitat.
All those memories. All those decisions about what to gift to kids or friends and what to sell or give away. Now’s the time to declutter your life by finding new homes for vehicles you don’t need (family-sized RV, anyone?), adorable but worthless collectibles and musty, basement loungers.
Get the family to help
No point doing it all yourself. Those high school yearbooks and UglyDolls didn’t get into the attic by themselves.
Legal Services You Can Afford
Axess Law makes getting legal advice affordable. We close real estate transactions for only $999.99 and up for buyers or $799.99 and up for sellers. Our real estate lawyers in Toronto, Greater Toronto Area and Ottawa transfer title to property you own. You pay just $649 and up for title transfers and $799.99 and up to refinance a mortgage.
Book Lawyers Online or By Phone
Our mortgage lawyers meet online via convenient video conference call, anywhere in Ontario. Book your appointment online using our easy booking form. Dial our 1-647-479-0118 lawyer line (toll free to 1-877-402-4277) if you prefer or make in person appointments any way you like.
You can visit an Axess Law lawyer near you in the Greater Toronto Area or Ottawa. Make day or evening appointments, 7 days a week. We have onsite parking and easy access to public