Here’s how home owners can age in their own place, even if they are struggling to afford it

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If you’ve made it to retirement at the age of 65, congratulations. Folks hitting this milestone have another 20.94 years to go, on average, according to Statistics Canada life expectancy data.

In other words, the average 65 year old will break 85, which happens to be the threshold where most Canadians start selling their homes, new research from Canada Mortgage and Housing Corp. indicates.

That threshold has steadily risen over the years, largely because Canadians want to live in their homes longer as they age. From 1991 to 1996, for example, 41.6 per cent of Canadians 75 and over sold their homes. The latest figures through 2021 show that number dropping to 36 per cent.

If you’re one of the majority who fancies growing old in your homestead, the million-dollar question is, do you have enough money to do it?

This week’s lowest fixed and variable mortgage rates in Canada

For an increasing number of Canadians, the answer is no. A meaningful percentage are now bringing more debt into retirement. For example, the share of seniors with mortgages in retirement rose three percentage points from 2017 to 2022, to 13 per cent total. High interest rates only exacerbate this trend.

Ideally, you’ll have enough retirement savings to ride out retirement in comfort. But what options do you have if you’re tight on cash and don’t want to move? That brings us to some tips.

Before you consider turning the living room into a bingo hall for extra bucks, here are some less drastic measures.

The reverse mortgage

This is the most obvious solution. It’s designed for cash-strapped homeowners who want to age in place but have no better way to supplement their income.

Reverse mortgages are generally a breeze to qualify for. And for this privilege of borrowing against your home equity with minimal proof of income, reverse lenders will charge you anywhere from 7.29-per-cent to 11.74-per-cent interest. The actual number depends on how you want your money (in one big chunk or smaller lump sums), what term you choose, and whether you want no prepayment penalties.

Regarding what it’ll cost you, suppose your rate averaged 7 per cent over the next 10 years, and you got a reverse mortgage for 30 per cent of your home value. In this case, you’d likely be left with just over 60-per-cent equity, assuming 2-per-cent average annual property value appreciation.

You can’t take home equity to the grave, so for many seniors who value their quality of life more than the quality of life of their heirs, it’s a tolerable price to pay.

How retirees are using reverse mortgages to downsize before selling their existing homes

A HELOC

For homeowners who aren’t wealthy but can still qualify for home financing, one of the smartest things they can do is get a home equity line of credit. And the time to get one is before they retire when their income is still high enough to get approved for a mortgage.

The advantage of HELOCs over other financing is that you can draw from them as needed and only pay interest on what you borrow. In other words, you don’t need to take money in big chunks, as you would with a mortgage or reverse mortgage. That lowers your borrowing cost and makes your equity last longer. HELOCs can also be paid off anytime without penalty, another advantage versus traditional mortgage financing.

By the way, I expect we’ll see a reverse mortgage that functions more like a HELOC before long. They exist in other countries and offer so much savings and flexibility – versus traditional reverse mortgages – that Canadian seniors would eat them up.

As for which HELOC to get in the meantime, there are dozens to choose from, but the option I’d feel safest with as a senior is the Manulife One. As far as I’m told, Manulife has never called in a HELOC on someone who’s paid as agreed. That’s because the Manulife One functions as a bank account and line of credit in one, so you always have income flowing through the account and paying down the monthly interest that’s due.

Having the HELOC called in could mean a senior loses their lifeline of funds and has to refinance into a higher-cost mortgage. That’s the biggest fear for older Canadians who rely on HELOCs.

Another advantage of the Manulife One is that any income flowing through the account, like from a pension or government benefits, immediately offsets part of the loan balance – even if only for a few days or weeks. That can save seniors a bunch of interest over time.

And yet another edge is that you can lock in portions of the Manulife One to lower fixed rates anytime to save interest versus the standard prime plus 0.50 per cent HELOC rate. You can even make those fixed mortgage payments from the line of credit portion, so you’re never out of pocket.

And lastly, Manulife has a version of the product called Equity Advantage, where you can use other assets to qualify if you don’t make enough income.

Secondary suites

Canadian rents are at historic highs. For some seniors, bringing in a renter may not seem ideal, but if it helps them stay in their home longer, it’s a price worth paying.

Before bringing in a tenant, however, you’ll want to do three things, among others:

Allocate the renter’s space: Ideally, it’s a self-contained suite. If your home doesn’t have one, you may need to build one and comply with municipal fire and egress codes, zoning and permit rules.

Renter screening: It’s mandatory for seniors to properly screen their renters to keep safe, ensure tenant compatibility and ensure the renter will pay. To do this, you need the renter’s written consent. Many services, including Sterling Backcheck and FrontLobby, let you verify a renter’s income, employment and criminal history. If you’re a senior, use them, but be aware they may not have data from a foreign country, if your renter is from abroad.

A good lawyer: A brief consultation with an experienced real estate lawyer will help you understand your obligations and risks – including if a renter doesn’t pay, is harassing or damages your property.

Whichever path you take, the good news for older Canadians – those who aren’t ready for renting or a retirement or long-term care facility – is that options exist.

Stress Test: The struggle is real: how homeowners are coping with soaring mortgage rates

Fixed rates on the downslide: The economy’s slide turns tide in borrowers’ favour

There’s more good news for borrowers this week with average fixed rates falling again. The catalyst has been recent employment and inflation reports, which have markets thinking that rates have peaked.

Data from CanDeal Data & Analytics show the bond market fully pricing in the first Bank of Canada rate cut by next July. But as unemployment ticks higher and the economy slows further, there’s probably a better-than-even possibility that the Bank of Canada’s first-cut may be pulled closer.

For now, North American economies are deteriorating so, barring unexpected inflationary surprises, there’s also a fair chance we’ll soon see more fixed rates start with a 4 instead of a 5 or 6.

Rates were sourced from the MortgageLogic.news Canadian Mortgage Rate Survey on November 16, 2023. We include only providers who advertise rates online and lend in at least nine provinces. Insured rates apply to those buying with less than a 20 per cent down payment or switching a pre-existing insured mortgage to a new lender. Uninsured rates apply to refinances and purchases over $1 million and may include applicable lender rate premiums. For providers whose rates vary by province, their highest rate is shown.

Robert McLister is an interest rate analyst, mortgage strategist and editor of MortgageLogic.news. You can follow him on Twitter at @RobMcLister.