Strategies for home ownership at the age of 45 is relevant to people who are single, new Canadians, late bloomers or those receiving an inheritance.Eduardo Lima/The Globe and Mail
Regardless of how you view renting, it’s obvious that a lot of people are priced out of home ownership right now.
Real estate developers have picked up on this. Re/Max Canada recently looked at commercial real estate in 12 large markets and found developers shifting focus to purpose-built rental construction, in some cases at the expense of condos and commercial buildings.
The real estate website Point2 says the number of owner households grew by 4.6 per cent between 2016 and 2021, while renter households grew by 10.3 per cent. The rise of the renter could be the big real estate story of the next five years, but let’s acknowledge that most people still want to own. Fortunately, there’s a way they can do this in a financially responsible way, even at age 45.
Let’s call this approach Home Ownership 45, an homage to London Life’s long-ago Freedom 55 marketing campaign. Home Ownership 45 is relevant to:
Singles: Without a partner, saving a down payment can take longer; so can getting to a career point where you can afford mortgage payments on your own.
New Canadians: Building a life here could mean a later-in-life home purchase.
Late bloomers: People who took some time to find their stride in life or in the work force.
People receiving inheritances: Money passed down from parents or relatives could present an unanticipated down payment.
Let’s map out buying a $750,000 property at age 45 with a 20-per-cent down payment, which works out to $150,000. With a three-year, fixed-rate mortgage at 4.95 per cent, payments work out to $1,736 on an accelerated biweekly basis.
This payment schedule is important if you take on a mortgage later in life. By paying every two weeks, you end up making what amounts to an extra month’s payment during a year. The net result is that you chop three and a half years off the standard 25-year amortization. Buy a home at age 45 and you’re mortgage-free by age 66 on this schedule.
Working past the standard retirement age of 65 is almost a must under Home Ownership 45. If you targeted retirement at 70, you’d have a block of years where you could take the full amount of your mortgage payments and redirect the money to saving and investing. That won’t be enough on its own for retirement, but it will help top up your savings.
A way to get free of your mortgage earlier and move up your retirement date would be to make some lump-sum prepayments over the years. It’s pretty standard for a mortgage to allow some degree of prepayment – maybe up to 10 per cent annually. Another thought is to see if you can make periodic double-up payments, where the additional amount goes toward principal.
A growing number of people are retiring with a mortgage these days, but there’s evidence that they’re not feeling comfortable with such a big drain on their retirement income. As noted in a recent column, companies offering reverse mortgages are drawing a lot of business from seniors looking to retire their mortgages. You don’t have to pay off a reverse mortgage until you sell your home.
Regardless of when you buy a home, saving a down payment using a first-home savings account (FHSA) makes good sense. You get a tax deduction for your contributions, plus tax-free compounding and withdrawals. Two drawbacks are that you can only contribute $8,000 per year and $40,000 in total, and the plan can only stay open for 15 years. Memo to the federal Department of Finance: This isn’t long enough – make it 20 years, at least.
If you’re unsure or skeptical you’ll ever own a home, age 30 makes a good start date for an FHSA. If you don’t ever buy a home, you can fold your FHSA into your registered retirement savings plan.
Some additional thoughts on Home Ownership 45:
Avoid buying a fixer-upper: Unless you’re skilled at home renos and can do this work on the cheap, you’ll want to put extra cash against your mortgage rather than into home improvements.
This is no starter home: Without a sharp upturn in your financial situation, you likely won’t have the resources to move to a bigger home.
Think multigenerational: Do you have aging parents who would be interested in moving in with you in a duplex format? They supply some capital to buy and maintain the home and offer spot child care; you supply support as required.
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