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Retiring with a mortgage? You have options

Banks are vying for property buyers by slashing their mortgage rates.

RAFAL GERSZAK FOR THE GLOBE AND MAIL/rafal gerszak The Globe and Mail

Paying off the mortgage is something most homeowners hope and expect to do by mid-life. But those who started late, refinanced or traded up find themselves with whopping mortgages to pay, just as they should be looking ahead to retirement.

Continuing to make house payments may not be everyone's fantasy heading into the golden years. But there are lots of options to consider for those in their mid-50s with sizable mortgages.

"It's all about planning," says Anthony Windeyer, a certified financial planner at Coast Capital Insurance Services Ltd. in Vancouver. For most would-be retirees, a home is by far their biggest asset, and it also presents considerable lifestyle issues, he notes.

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He says there are three choices for people in their 50s dealing with a substantial mortgage: keep the house and keep up – or, better, accelerate – your payments, sell it and buy something with little or no mortgage, or sell it and rent a place, investing any money left over.

Staying in the home may offer security, knowing that you'll have a significant retirement asset down the road, and it can also come with large emotional attachments. Of course it also has intangible value, allowing you to maintain your lifestyle in a comfortable space and familiar neighbourhood. If that's desirable, do the math: If you can afford the payments and other costs, it might be advisable to get aggressive with the mortgage now.

"Anyone who's looking to retire, there's no downside to paying off as much as possible of their non-deductible debt," Mr. Windeyer says, adding that with today's low returns on investments, "you will never lose if you pay down your mortgage."

Many empty-nesters end up with mortgages because by 45 they started focusing on wealth-creation as opposed to debt pay-down, and they are now not able to be aggressive enough on the latter, says Al Nagy, a certified financial planner at Investors Group Financial Services in Edmonton.

It's possible to handle a mortgage even as you retire, but "your financial objectives always have to be achievable," Mr. Nagy says. "In retirement, cash flow is king."

A mortgage "has to relate to everything else in your financial planning picture," he says, to determine "the best bang for your buck." Putting money into your RRSP does make sense when you have significant income, and your tax rate is higher than it will be in retirement, for example. Then you can apply your tax refunds in a lump sum to the mortgage.

If you're looking to move or actually have little equity in the home, it makes sense to sell, Mr. Windeyer says, and either buy something more affordable or rent accommodation. One benefit of selling is that real estate prices across Canada are relatively healthy now, he notes. "We don't know if the market is always going to be high."

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Renting especially makes sense approaching retirement, because if you're in a more modest place it frees up money to invest for income and to apply to lifestyle. It's also possible to live wherever you want and transition to accommodations that are near hospitals or more appropriate for those with limited mobility and where it's possible to eventually receive care.

You'll also avoid the additional costs of ownership, such as property tax (although in some jurisdictions, such as British Columbia, property tax for older people can be largely deferred), as well as maintenance, which of course can be a hassle in an older home.

One consideration for someone with a mortgage or other debt may be to work longer, which is also a lifestyle issue. "You have to make the choices appropriate for you," Mr. Windeyer said. "There's no one answer."

He notes that the choices include "hard facts," projecting what the financial picture looks like, and "soft facts," such as personal preferences. Calculators that factor in elements such as your current and anticipated retirement income can be helpful, but they are "blunt tools" for people with longer time horizons and may be inadequate for those approaching their late 50s.

Home ownership, mortgages, cash flow and other issues are important to consider in terms of your "retirement readiness," Mr. Nagy says, adding that it's also important to be "flexible with our goals," because unexpected things can happen.

"A comfortable retirement is one where you're not scraping and clawing to make ends meet," he adds.

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