They say death and taxes are the only two constants in life, so the question is, what happens to your mortgage when you die?
The short answer, according to Donna Lewczuk, a mortgage agent with Dominion Lending Centres, is “If you’re single and have no insurance, the executor of the estate will sell the property and pay back the mortgage. If you are married you can continue with the mortgage if you are able to make the payments.”
That’s because the mortgage stays with the property, not the person or persons, says Mary Wahbi, a partner at Folger Rubinoff LLP who looks after estates. “Not much will happen when you die, the mortgage isn’t triggered on your death and isn’t payable then but it is still your debt.”
The debt remains even after you die. Mortgages are also considered secured loans and the lenders want their money and they will come after your estate to get it. Secured creditors have a leg up when it comes to loans and if there is security, like your home, they will get paid first.
If you’re the sole owner of the property and you have a will, the executor of the estate will have the authority over your estate. They can either sell the property and use the money to discharge the mortgage or if there is enough money to carry the costs, the mortgage can continue to be paid. If you die without a will, Wahbi says that someone will apply to the court for authority over your estate and then the same decisions will be made regarding your property.
If you bought your home with a spouse, more than likely you’re considered joint tenants (check your legal documents from when you bought your home). When one joint tenant dies, the other gets the home automatically by right of survivorship and the home doesn’t pass through the deceased’s estate. So the spouse can continue to make the payments if they can afford it and then when the mortgage comes up for renewal, they can decide if they want to keep the home and negotiate a new mortgage based on their financial standing or sell it.
Now if you bought the home with a friend, you’re not considered joint tenants. You’re considered tenants in common and the surviving person doesn’t have the right of survivorship. The share of the home, the asset, becomes part of the deceased’s estate and is distributed according to their will. Even then, as there is still a mortgage, the secured creditors are still the first ones to get paid out of the estate.
“Banks don’t care who’s paying the mortgage once they get paid,” says Wahbi.
Condos reign supreme in Canada’s hottest cities. The majority of first-time homebuyers in Vancouver, Toronto and Montreal are picking condos, in part due to affordability challenges with single-family detached residential homes. Here are the numbers behind Canada’s condo explosion.
Do you want a condo or house? As a first-time homebuyer, this question is probably the first you’ll answer before starting your home hunt. Budget is a large factor, as is region: condos are king in urban markets like Vancouver, Toronto and Montreal, while houses are the go-to in Calgary and on the East Coast. Want to know what’s right for you? Take our “Condo or House?” quiz to shed light on your condo or house dilemma.
Condo or House?
Answer each question below, noting which answer you picked. Use our answer key and tally up your points to find out what’s better for you: condo or house.
Question 1: Can you afford to spend $500,000 or more on your first home?
Question 2: Do you work from home?
a) Yes, most or all of the time.
c) I may occasionally bring light work home.
Question 3: Are members of your household very busy with outside activities, or do you tend to be homebodies?
a) We’re very busy and spend a lot of time outside.
b) Most of our hobbies are home based.
c) It’s a mix in our household.
Question 4:Do you enjoy outdoor chores like yardwork, gardening and home maintenance?
a) Yes, I love working on my home and garden.
b) No way!
c) I’m not sure, but I’d consider it.
Question 5: Do you like to entertain friends and family in your home?
a) Absolutely! We love hosting big family dinners and dinner parties.
b) Sometimes, but we’re more into parties than sit-down meals.
c) Yes, but we prefer intimate get-togethers, like having a couple of dinner guests over at a time.
d) No, we prefer to host guests in a restaurant.
Question 6:What best describes your household composition?
a) Living solo and loving it!
b) We’re a couple, with no immediate plans for kids.
c) We’re a couple, getting ready to start our family.
d) We’re a full house of four or more, looking for room to grow!
Question 7: Minimalist living: yay or nay?
a) Yay: I am the queen (or king) of clutter-free living!
b) Nope: I like personalizing my space with my objects.
If you selected A, add 10 points.
If you selected B, add 5 points.
December 2017’s national average house price was $614,575. While houses can be had for less, even in big cities like Edmonton, Ottawa and Montreal, those who live in the Greater Vancouver Area or Greater Toronto Area will find that a budget of half a million dollars limits them to condos.
If you selected A, add 15 points.
If you selected B, add 5 points.
If you selected C, add 10 points.
Those who work from home should prioritize home office space; a spare bedroom is ideal. Others can get by with a small computer station or even converting a closet into a tuck-away office.
If you selected A, add 15 points.
If you selected B, add 5 points.
If you selected C, add 10 points.
The more time you spend at home – and the more members of the household that join you – the more home you’ll need for comfort.
If you selected A, add 15 points.
If you selected B, add 5 points.
If you selected C, add 10 points.
Owning a house comes with both seasonal tasks (shovelling snow, gardening, raking leaves, etc.) and weekly chores (taking the trash and recycling to the curb).
Avid home chefs and entertainers will benefit from a roomy kitchen and an open-plan kitchen/dining/living area. A large backyard would be a perk. Condos needn’t cramp your style if you have smaller get-togethers, or if you host your birthday bash in a party room, the perfect pop-up spot for canapés and mingling.
If you selected A, add 5 points.
If you selected B, add 5 points.
If you selected C, add 10 points.
If you selected D, add 15 points.
Although condo living is adaptable, at a certain point a growing family may be bursting at the seams and need more room to roam.
If you selected A, add 5 points.
If you selected B, add 10 points.
Decluttering will keep your smaller space looking sharp. While houses also look their best when belongings are edited, they do provide more hiding spots for those things you’ve been meaning to purge (but haven’t gotten around to yet!).
Tally up your points and find out whether a condo or house is better suited to your lifestyle.
If you scored:
35-55: Confirmed Condo-ista
Between price and lifestyle considerations, urban condo living is ideal for you. You’ll love the convenient, maintenance-free condo lifestyle and, of course, being in the heart of the city’s action.
60-80: Ambivalent Shopper
Aspects of condo living (convenience, price point) hold strong appeal for you, but you’re also considering a house you can grow into. It wouldn’t hurt to explore both options, plus townhouses, which offer a bit of each home type.
85-95: Hard-Core House Hunter
You’re looking to live large in a home that does your lifestyle justice – and you’re willing to pay a premium and put in sweat equity to do it. You’ll love turning your house into a home, with room for the creature comforts you cherish.
Veronica Dy and her husband had their retirement plan all mapped out.
They recently sold their large family home in San Gabriel, California, for $850,000 and walked away with $250,000 in net proceeds to put toward a smaller home in Los Angeles to be closer to their son’s family. They figured it would be easy to find a quaint, two-bedroom home where they could age in place without overspending on housing.
They thought wrong. The couples’ home search came up empty week after week, and the few properties within their budget – about $550,000 – are selling well over asking price almost immediately, Veronica Dy says.
Now, the couple spends roughly $3,200 per month – nearly half of their monthly household income – on rent and other housing-related expenses farther out from the city as they keep looking. While they’re trying to remain optimistic, the uncertainty of their situation makes Veronica Dy, 61, doubt that they’ll retire anytime soon.
“I was waiting to retire when I’m 62 but with our current circumstances, now we’re playing it by ear,” says Dy, who works in health care. “I look every day for houses, but there’s nothing on the market that’s affordable. I wanted to live closer to our son and help them with our grandchildren, but it’s going to be hard.”
The Dys’ struggles are shared by a growing number of older Americans who wrestle with whether to downsize or age in place. The answer, as it turns out, isn’t so simple.
In its just-released 2018 Survey of Home and Community Preferences, AARP found that 76 percent of Americans age 50 and older prefer to remain in their current home, and 77 percent would like to live in their community for as long as possible. However, just 59 percent of older Americans think they’ll be able to stay in their community, either in their current home (46 percent) or in a different home still within their area (13 percent).
Rising mortgage rates, sky-rocketing home prices, and inventory shortages at the lower end of the market are converging to create a new housing crisis – this time for baby boomers, housing experts warn.
Aging in place vs. downsizing: Which is best?
By 2016, there were roughly 74.1 million baby boomers (people born between 1946 and 1964) in the U.S, according to a Pew Research analysis of U.S. Census Bureau data. By 2030, when all baby boomers will be between 66 and 84 years old, Census predicts boomers’ numbers will drop to 60 million people.
As boomers age, an alarming trend has emerged: they’re entering their golden years with mortgage debt. Americans over the age of 60 were more than three times as likely to carry mortgage debt in 2015 compared to 1980, according to an analysis of Census data by the Center for Retirement Research at Boston College. Much of the increase in seniors’ mortgage borrowing is in households with below-median incomes and assets, and no pensions, the analysis found.
Generally, past generations aimed to have their mortgage paid off before retirement to better manage their reduced incomes later in life.
Carrying mortgage debt may offer one explanation as to why many baby boomers prefer to remain in their current homes. Other factors, such as retaining home equity, staying in familiar surroundings, or a lack of affordable options, also drive the decision to stay put.
Aging in place, however, can be harder to do if boomers’ homes aren’t equipped to meet their future needs, says Jennifer Molinsky, senior research associate at the Joint Center for Housing Studies of Harvard University.
“There’s a growing linkage between housing and health care, and being able to stay in your house longer,” Molinsky says. “Making your house accessible for [in-home health care] is ideal, but this is harder to manage in lower density areas because of limited transportation and accessibility to doctors in rural areas. Communities need to think about how these services interrelate with housing, because that’s a real challenge for the future.”
Tapping equity to stay put
Mobility and health issues pose the greatest barrier to seniors who want to stay in their current homes. Older homeowners may need to add amenities, such as bathroom grip bars, walk-in showers, wheelchair ramps, and wider hallways and doorways to accommodate walkers or wheelchairs as their mobility declines. Some of these improvements are simple, but when you start redoing bathrooms, for example, remodeling projects can add up quickly.
Seniors who own their homes outright or have significant home equity typically borrow against their homes to help pay for modifications, says Sam Preis, regional director of sales with BBMC Mortgage.
Several loan products can help older homeowners pay for improvements that will make their homes livable for years to come. Preis recommends the following options:
Home equity loan – A home equity loan makes more sense if you have to make several modifications at once and need an upfront lump sum to pay for them.
Home equity line of credit, or HELOC – A HELOC works like a revolving line of credit that lets you withdraw on the line as often (or as little) as you need it for improvements in stages.
VA financing – Many older veterans who served in the military mistakenly think their VA benefits expire, but that’s not true, Preis points out. The VA offers cash-out refinancing, typically with no down payment requirement, to pay for home improvements. The VA also provides special grants for adapted housing for veterans with a service-connected disability. The grants help pay for a remodel or the purchase/building of a new home that accommodates their disability.
Reverse mortgages – A federally insured Home Equity Conversion Mortgage, or HECM, is the most common type of reverse mortgage. Insured by the Federal Housing Administration, HECMs allow people who are 62 or older to tap a portion of their home equity without having to move. You also can use a HECM to buy a home.
Low inventory, rising rates create barriers to downsizing
At the crux of boomers’ dilemma is the shortage of affordable homes on the market. That, along with rising mortgage rates – a trend that’s expected to continue – can create significant barriers to downsizing, says Laurie Goodman, vice president of housing finance policy and codirector of the Housing Finance Policy Center at the Urban Institute.
The national average rate for a 30-year fixed mortgage hit a record low of 3.41 percent in July 2016, according to historical data from Freddie Mac. As of Aug. 30, 2018, the average 30-year fixed rate was 4.52 percent – more than a full percentage point higher.
“Higher rates have a huge effect on mobility for everyone,” Goodman says.
Baby boomers who plan to stay in their current communities are likely to have the upper hand in competing for a smaller, less expensive home if they’ve paid off or have significant equity in their current home thanks to inflated appreciation. The key question is whether they’ll find the right home for their needs amid inventory shortages in the lower end of the market.
Seniors’ mobility could be impeded if they try to relocate to more expensive markets to be closer to family than where they currently live, especially given higher rates and rising prices, Goodman points out.
“There’s a limited supply of homes, along with rising prices – that’s a problem that’s not correcting and it’s getting worse and worse,” Goodman says.
Restrictive zoning laws and higher land costs are pushing builders to focus on producing luxury single-family homes (rather than economical multifamily projects) to remain profitable, Goodman says. The key to encouraging more building is a revamp of local zoning rules to enhance the variety of new housing projects, she adds.
Older Americans thinking outside the traditional housing box
In a lot of U.S. communities, a lack of housing variety complicates the picture for baby boomers who are seeking affordable options. And for some older folks, economic necessity is giving rise to creative solutions that buck tradition.
The AARP survey found that adults age 50 and older are open to housing alternatives, such as home sharing (32 percent), building an accessory dwelling unit (31 percent) and villages that provide services that enable aging in place (56 percent).
Whether it’s for economic viability or to gain companionship, seniors’ willingness to think outside the box is driving the growth of unconventional housing solutions, says Danielle Arigoni, director of livable communities with AARP. The “Golden Girls” style of roommates is one shared-housing arrangement gaining steam. There’s also intergenerational home-sharing; an online platform called Nesterly, for example, matches older adults with college students who are looking for roommates.
“An affordable housing crisis is brewing and, in many places, it’s already here,” Arigoni says. “[These solutions are] becoming less taboo and more accepted. And that’s partially just recognition of the financial realities we’re all accepting.”
The appetite for home-sharing is being driven by a resurgence in accessory dwelling units. An accessory dwelling unit is a smaller, secondary building that’s attached to the primary home or located on the same lot. This type of housing (think granny flat or mother-in-law suite) offers a livable solution for seniors who want to age in place and generate rental income, live near family, or eventually bring in-home care help down the road, Arigoni says. The key roadblock to add accessory dwelling units, though, is securing approval from local zoning or building authorities, she notes.
Whether downsizing or staying put is in your future, housing expenses will undoubtedly play a huge part of your overall retirement picture. Preis, with BBC Mortgage, suggests crafting a financial plan for retirement (if you haven’t already). Sit down with a financial advisor, a mortgage lender (if you plan to finance a home purchase or tap your home’s equity), and your accountant to figure out what options will help you live comfortably while maximizing your retirement income, Preis says.
The decision to downsize or age in place isn’t just about affordability or the place you call home. Consider how close you’ll be to family, friends, doctors, hospitals, transportation, parks, cultural attractions, and other key amenities that make a community truly livable, Arigoni says.
How much are you paying each month in condo maintenance fees and what do those fees truly pay for? If you don’t know the answer to that question, you might want to read this study.
Maintenance fees (MF) are a constant topic in condo real estate, both during your search process and once you own a home. Back in 2015, we released a study that revealed the truths and myths behind maintenance fees in Toronto condos. But two years is a long time, especially in today’s real estate climate, so we’ve come back with our Maintenance Fee Report 2.0.
But first, a bit of maintenance fee 101
Every homeowner will pay maintenance fees in one form or another. Whether you have a freehold house or a condo apartment, a homeowner’s maintenance fees cover a wide range of home upkeep costs from lawn care to roof repair.
For a freehold house, the everyday upkeep costs will vary from year to year, depending on the condition of the house and whether there’s a need for sudden repairs. Unexpected costs are the most common worry with owning a freehold house. When a pipe bursts or the furnace quits, you can be hit with a sizable bill.
For condos, the maintenance fees tend to follow the rate of inflation, acting as a fund for the on-going upkeep of your unit and building in a range of ways. That fund, if managed well, can keep unexpected costs away for good.
That’s the key benefit of the structure of condo maintenance fees over freehold: the potential to remove sudden, unexpected costs.
It’s not surprising that there are a lot of misconceptions surrounding condo maintenance fees. In this report, we’ve picked the most common concerns that our Condo Pros hear from clients and broken them down into true or false answers.
1. Maintenance fees have no legal increase limit
There is no legal regulation regarding the amount that a condo building’s maintenance fees can be increased annually. There is a general rule that maintenance fees increase to adjust with inflation and/or the needs of the building. Condo corporations are non-profit entities made up of unit owners within the building, not an outside group. The cost of operation adjusts for the true cost of maintaining the building. The condo board members who may vote to raise maintenance fees are in the same boat as all other owners in the building.
2. Lower maintenance fees mean lower monthly costs
Maintenance fees cover different elements from building to building. Some buildings include the cost of water, heat, hydro, insurance, and other elements in the maintenance fees. Others may not. If those elements are not included in the maintenance fees, you will have to pay them separately. That’s why it’s important to know exactly what your maintenance fees cover. A low maintenance fee does not necessarily mean low monthly costs.
The maintenance fee that includes water, heat, hydro, and A/C is obviously more expensive, but these elements must be paid regardless. If you’re paying for these elements separately, the total monthly costs could be much higher than if they were included in the maintenance fees.
3. Smaller boutique buildings are less expensive than high-rise towers
Condo building maintenance fees depend on a lot of factors. At the top of the list is the building’s footprint and the number of units. Between two buildings of a similar footprint, it doesn’t matter if the buildings are five-storeys or forty. It will cost the same amount to maintain and repair the roof. That cost is dispersed across the units. The more units, the broader the dispersal; and the lower the fee for each individual unit.
Building amenities are another key contributor with a range of factors. But it still has to do with the number of units. A concierge service shared between ten boutique units will be more expensive per unit compared to a concierge shared between 400 units.
Between two buildings of a similar footprint and similar amenities, the one with more units will tend to have lower maintenance fees. However, the building with more units will have a higher opportunity for wear and tear of common elements, which might in the long run cost more to maintain.
4. Maintenance fees always spike within 3-5 years for new buildings
TRUE AND FALSE
Every building is managed differently. Builders often market new buildings with low maintenance fees to make them more appealing to buyers. Once the condo board takes over, it is common to see fees undergo slight increases as the board fills out the reserve fund. After an initial increase, however, fees should stabilize. In the case of well managed properties, maintenance fees even come down. For instance:
5. Low maintenance fees are a sign of value
Maintenance fees should be priced in accordance with the true cost of operating and maintaining the condo building. If that true cost is low, and the maintenance fee is low, then great. But if maintenance fees are low for the sake of attracting buyers, and are not adjusted to the true costs, then you could run the risk of a mismanaged reserve fund.
A better sign of value is smart building management. The maintenance fees fill the reserve fund and are used for big repairs, upgrades, etc. If a building is poorly managed, the reserve fund may deplete, at which point the condo board will have to issue “special assessments.”
During the condo search process, however, you may still want to look for buildings with low maintenance fees as a means of maximizing your purchasing power. With a lower all-in monthly maintenance fee, you can allocate more of your monthly budget towards a mortgage payment, thereby increasing the size of the mortgage you can carry. Just be mindful of the building’s true operating costs.
6. Cost of Parking Spot and Locker are included in maintenance fee
Parking spots and lockers are often separately titled properties, which means they have their own maintenance fee attached to them. If your parking spot or locker is separately titled, then you have to pay a separate fee on top of your condo maintenance fee.
Source: via Condos.ca as of Jan 4, 2018. All data is for 2017 unless otherwise noted.
Condos.ca has worked diligently to ensure the accuracy of this information and our calculations including the removal of any small samples and data anomalies that could skew results. However, we cannot guarantee the information with 100% certainty due to factors including but not limited to potential incorrect information entered by listing brokerages or agents on MLS. This information and the views and opinions expressed here are intended for educational purposes only. Condos.ca accepts no liability for the content of this study.
It wasn’t that long ago when the outlook for retirees focused on baby boomers downsizing and moving into smaller homes in the country — trading an urban lifestyle with a relaxing, rural retirement.
Fast forward 20 years, and many retirees are opting to stay in their homes for longer: renovating, upgrading and improving accessibility along the way.
A comfortable home is a comfortable lifestyle that many are not willing, or wanting, to give up.
The definition of “old” has changed.
Joseph Segal, the founder of Kingswood Capital, has just put his tony 22,000-square -foot home in Vancouver’s west side up for sale, for $63 million.
Why? Because they are downsizing to a smaller home in Vancouver.
“I’m an old man,” said the 92-year-old Segal, and “it’s a big place.”
Many of us are living longer and have healthier lifespans with various sources of retirement income, and ultimately we will ask the question: should we buy a condo, downsize to a smaller home or cash in and rent?
All options have pros and cons.
Is a condo right for you?
Buying a condo may mean downsizing our footprint, but in many cases it doesn’t mean downsizing the cost.
Retirement communities are being pitched to seniors across the country with promises of amenities such as entertainment, hospitals to retail.
Many choose to be closer to families along with the desire to live in accommodations that are maintenance free. It can be enticing.
On the other hand, the concern over new costs such as condo fees or retirement residence fees can be worrisome.
Is it time to downsize?
In a hot real estate market, the temptation to cash in and lock in your appreciation can be overwhelming.
But before you do, Ted Rechtschaffen, president and CEO of TriDelta Financial, said in a BNN interview to ask yourself: is the house I’m in now too large or too difficult for me to manage?
And consider where your wealth is concentrated. Do you have too much of your wealth tied up in real estate? You have to live somewhere. So do you buy or rent? Unless you plan on living in a home for at least 6 years, you might be better off renting.
I’ve never been a fan of trying to time the market. You have to get it right at least twice. Going in and getting out.
Consider your lifestyle, potential longevity and retirement funding options. Even if you don’t pick the peak of the market you are still holding on to the lottery ticket that doesn’t have an expiration date.
A growing number of homeowners are unlocking the equity in their houses, by selling and moving into a rental.
William Jack woke up in the middle of the night last month as he often does. This time, though, he rolled over and went back to sleep.
That’s when he knew that after more than two years of turmoil, he was finally home. The fact that the roof over his head belongs to someone else only added to his peace of mind.
William and his wife, Mary Taylor, are among a growing number of Toronto area downsizers, who are choosing to rent rather than buy a retirement nest. It is a choice, they say, that can be physically, mentally and financially liberating.
The couple — he’s 71, she’s 69 — are healthy, vibrant people. But a couple of years ago, their two-storey home of 32 years with its reverse ravine lot was “just consuming too much time and it was absorbing huge amounts of energy that we wanted to use in other ways,” said William.
“There were rooms we didn’t go into,” said Mary.
“We watched both our parents go through this downsizing exercise. I swore I would never do to anyone what my parents did to me. It was a nightmare,” said William.
“We wanted to leave while we still could — gracefully,” said Mary.
Royal LePage realtor Desmond Brown helped sell the couple’s east-end home and, in the end, he was the one who helped them find the two-bedroom, 1,800-sq. ft. condo they have been renting near the lake since the fall.
The emotional and financial decision to rent rather than buy is becoming more common, said Brown.
Clients like William and Mary, “have had a really good run by owning their own homes for many years,” he said.
“They’ve accumulated a lot of equity. They have a feeling that the market is going to go back down again and all the benefits of this great market are going to be lost if they don’t cash in,” said Brown.
At the same time, these home sellers can’t necessarily see spending $1 million or more, plus maintenance fees, on a condo.
“Yes, I was incensed when I saw these places for the same amount of money as our house. How could that possibly be,” said Mary.
But, she said, “It doesn’t make sense to rail against the market. That’s the market, so you accept it or not.”
Initially they were open to renting or buying.
“Buying any of the units we looked at would have consumed a huge percentage of our net worth. You don’t want 50-, 60-, 75-, 80 per cent of your net worth in one piece of real estate. It’s just too risky,” said William.
“The price of the condominiums we were looking at went up by $20,000 a month or more,” said Mary.
The couple pays about $4,200 a month in rent. It might sound like a lot but they write only three cheques a month — rent, hydro and cable. When they lived in their house, there were 15 to 20 regular expenses.
Gone, they say, are the bills for a security system, for chimney repairs, sewer connections and maintenance agreements on appliances. Even firewood cost $500 a year.
The condo is the third rental for the couple since they sold their house. The first summer they rented a place in Prince Edward County and then they moved to the west end for a year. But they missed the east end.
“We realized community was much more important than we thought. The cottage was isolated and (the west end) place was so transient you couldn’t have a community,” said Mary.
Now they live in a building where they know other members of their yacht club and they enjoy bird-watching near the lake.
Their apartment is decorated with souvenirs of their travels but there is no granny vibe.
It’s the type of high-end rental that can be difficult to find. Apartment hunting is not particularly lucrative for realtors even if they can find something suitable among the few leases on the Multiple Listings Service.
In the hot Toronto property market, renters are increasingly in the same position as home buyers. They have to compete, sometimes by offering higher rents or cash upfront.
“We were paying $3,750 (in their previous west-end apartment) and when (the owner) listed it on MLS there was a bidding war and she ended up getting $4,500 a month,” said William, an actuary and former IT executive.
Helping clients find a rental is all part of the service Brown provides when he has helped someone sell a home. He found this couple’s condo by word-of-mouth. But he acknowledges the searches can be challenging.
“When you’re spending up to $5,000 you’re going to be picky so finding the right one can take some time,” said Brown.
Mary says they knew they were home as soon as they walked through the door of their condo. But that was after they had looked at a lot of places — many were “appalling,” said William.
Is renting a condo saving them money on a monthly basis?
“Probably not. But it isn’t costing us more,” said William. He says they have taken the proceeds from their home sale and invested the money.
Releasing the equity on your house can actually generate enough cash flow to cover rent, agrees Scott Plaskett, CEO of Ironshield Financial Planning.
For people rich in equity but cash poor, renting can give them the freedom to pay for some of the extra things they want in life. It’s all very well to watch your home’s value appreciate, but you can’t eat a doorknob, he said.
If the decision to rent or buy a smaller home is a financial wash, he advises his clients to go with the better emotional fit. That frequently depends on whether they are comfortable giving up the control of owning their own place or whether they really need the cash to cover the cost of enjoying their retirement.
But Plaskett warns retirees to be aware that the economic environment in which they are investing the equity they have earned on their homes has changed.
“We’ve never really existed in an environment where we’ve had wealth with interest rates this low,” he said.
If you’re going to rent and invest your home’s equity you need to look carefully at where you’re putting that money so you’re not seeing your old age security benefits clawed back.
“Now you have all this money that’s being released from one of the legal tax shelters in Canada into a non-sheltered environment,” said Plaskett.
When their abundant garden became too much to manage, Jane and Bill Martin, 79 and 80, didn’t even consider buying another home.
“We don’t want the responsibility. (With an apartment) you can close the door and go away. We just didn’t want to own again,” said Jane.
Experienced apartment dwellers, the Martins raised their kids in an east end rental.
They only bought their house south of Scarborough General Hospital because an accountant advised it as a wise investment, said Jane.
When it came time to move, it took a couple of months viewing between 15 and 20 apartments (“From the worst on up,” said Jane.)
“The ads look good but when you go and look at the place. . . ” she said. “Most condos you’re talking 700 to 900 sq. ft. That won’t do.”
They found 1,230 sq. ft. with two bedrooms, two bathrooms and two balconies for $1,882 a month near Cummer and Bayview Aves.
The TTC is outside the door and conveniences such as a drug and grocery store, banks and the post office are right there.
They’re not used to the shopping in their new neighbourhood yet. It feels like a long way to big department stores after living five minutes from the Scarborough Town Centre for so many years.
They still go back to their old neighbourhood butcher.
“We had a lot of good friendly neighbours so you miss them,” Jane said. “Every now and again we make a little excursion day and head down there and do some shopping and get some haircuts.”
Laurie Bell has been downsizing seniors for five years. Lately, she says, she sees a trend to renting rather than buying among people who can still live independently.
One couple actually rented a condo to see if they would like the lifestyle.
In two other cases the reasons were financial, said Bell, who has a background in mental health and, at one point, even sold real estate.
“When the person’s significant major asset is their house, they’re looking at how they can move, get rid of the maintenance,” she said.
“They just want to know where they stand financially. It’s frightening to look at renting a condo because it might just be for a year.”
More seniors want to maintain their autonomy and avoid relying on their children or other family members.
“They’ve seen it not go well if people do wait too late and there’s been a precipitous incident,” said Bell, whose company is called Moving Seniors with a Smile.
Services like hers take a lot of the physical and emotional stress out of the downsizing process.
There is often 30 or 40 years’ worth of possessions to sort through, which can be emotionally taxing because her clients can’t keep it all.
She also has a coterie of reliable service providers: movers, junk removal companies, even shredders for paper work.
Bell describes it as a three-day process. The first day is spent packing, the second day the client’s belongings get moved and the third day they get the new place set up.
“They can have friends over for cocktails by 5 p.m.”