Why Canadians Still Have Mortgages in Retirement

May 5, 2014 · Print This Article

With more than half of Canadian retirees in some form of debt, including having a mortgage, it’s safe to say that the “traditional” model of retirement is becoming outdated. That being said, Canadians who choose to carry debt into retirement aren’t necessarily throwing caution to the wind; they may actually be making a solid financial choice.

Low Interest Rates

One of the most significant reasons to carry a mortgage into retirement right now is our historically low mortgage interest rates. While you can’t safely say that these low rates will be in place throughout your retirement years, it is an incentive to pay off your mortgage a little later in favour of paying down more high-interest debt such as car loans and credit cards.

Using Money for Other Things

Retirement can end up costing a bit more than you planned for. Most early retirees don’t want to sit around the house. Activities like golfing, day trips and vacations cost money. If retirees choose to pay down mortgage debt rather than engaging in these activities, their quality of life may suffer. If a mortgage debt can be comfortably handled with regular income, it’s not surprising that many don’t see the need to pay it down.

Cashing in Investments Can Mean a Tax Hit

If a retiree is moving to a new property, it may actually make more fiscal sense to take out a mortgage on a property, even if they can afford to pay for it in cash from investments. The financial hit from cashing in a large investment at once will be much more than the tax you will pay on drawing just enough out of the investment to pay the mortgage once a month.

Where a Reverse Mortgage Comes in Handy

Reverse mortgages make the most sense where a retiree wants to stay in their home for the duration of their retirement. If they have investments, a reverse mortgage will offer them the same protection as a new mortgage, allowing them to not cash in investments all at once and take a tax hit. In fact, a reverse mortgage affords better protection for investments because you don’t even need to make small withdrawals from your investments to service a mortgage; you don’t pay anything until your home is sold. This allows investments to grow without touching the capital until you really need them for something else.

A retiree who still has a mortgage isn’t someone who hasn’t planned well enough for their retirement. In many cases, they are making sound financial decisions on the advice of financial planners and investment professionals to preserve their investment capital and maintain their quality of life.