As people age, what they need out of their homes may change as well. For many older homeowners, the period leading up to a mortgage renewal is the time to consider future goals and whether they see themselves living in their home come retirement - and to think about how to make their house more accessible to accommodate.
Lee Welbanks, a Toronto mortgage broker and the owner of Welbanks Mortgage Group, says homeowners should think as far ahead as possible. “It’s a good idea to give some thought to what your future needs might be,” he says. Mr. Welbanks typically begins discussing retirement needs with his clients around age 55.
He says that for people anticipating a need to make changes to their home in the future, the simplest solution may be adding a line of credit to their mortgage at renewal time. “If you do have some potential renovation needs down the road – you may not need it today, but a line of credit can make that a lot easier to deal with later on,” he says.
Mr. Welbanks says he generally advises his clients to consider getting one while they’re still working — after people are living on reduced income when they retire, they may no longer qualify for a line of credit, making any future spending more difficult.
Another way for homeowners to free up some cash for retrofits, while simultaneously reducing monthly mortgage payments, is to negotiate an extended amortization period when they’re renewing. “That’s more comfortable for someone who may want to use their savings for those renovations, or ... is concerned their mortgage payments are just a little too high for their reduced income in retirement,” Mr. Welbanks says.
For homeowners who have limited income but have equity in their home, a reverse mortgage may be their best bet. A reverse mortgage comes with a higher interest rate, but allows someone to borrow from the equity in their home without paying it back, or only making payments on the interest. “If you’re carrying an existing mortgage and have these needs and want to stay in the home, a reverse mortgage eliminates all those payments,” Mr. Welbanks says.
In the past it was an avenue Mr. Welbanks rarely suggested to clients, because there were more options available to them. But as the federal government has made qualifying for mortgages and accessing funds more difficult, he’s seen more interest in reverse mortgages.
According to Jeff Spencer, vice president of retail sales and distribution for Manulife Canada, more people should consider tapping into the value in their home if they have the option to do so.
“For the majority of Canadian retirees, the objective is to stay in their home or their neighbourhood,” Mr. Spencer says. “They do not want to have to move.”
He notes that too often homeowners are afraid of using their home’s equity, not seeing it for the savings vehicle it is. “We don’t feel guilty about liquidating our other savings assets and we shouldn’t feel guilty about liquidating our real estate assets either,” he says.
Borrowing some money against the house in retirement in order to remain in the home? It’s okay to do, even if there’s no real tax savings or large financial benefit for the client, because it’s accomplishing their objective of staying in their house.”
Ultimately, Mr. Spencer says, aging homeowners should look for a product that allows them to reach their goal while still giving them the flexibility to make adjustments down the line if their circumstances change.
He suggests Manulife One, a tailored debt management solution that combines bank accounts, investments, mortgages and lines of credit into one account. All income goes towards paying down the total debt, and the account calculates interest daily. The result is that you substantially save on total interest costs until you need to withdraw funds again to pay for expenses.
Manulife One also allows clients the flexibility to access the equity in their homes up to their borrowing limit if they need to make changes to their home without worrying about tax implications, and gives them the ability to decide how to pay that debt down.
“Having that flexibility as they have lifestyle changes, health issues, anything that is going to require some kind of change in the home, provides retirees with the option they need to stay in their home as long as they choose to,” he says, “and to act in their own best interests.”
Advertising feature produced by Globe Content Studio. The Globe’s editorial department was not involved.