Michelle Lapierre

More and more Canadians are hitting retirement with a mortgage or other debts. While some choose to take a mortgage while their investments make them more return; for many it is simply a necessity. The flexibility to have mortgage freedom should still be the focus and goal of all homeowners. But what if that milestone is fast approaching and you just cant get there? Or, you are past retirement, you do have debts, and you are struggling on a pension income? According to Statistics Canada, 34% of retired people over 55 are still carrying debt. Equifaxs most recent quarterly report in September noted the highest delinquency rate increase was for Canadians over 65 at 7.13%. The new reality for many Canadians changes the conversation from you must pay your mortgage and debt off to how can I work these into my new retirement cashflow and budget. So, what are your options? There are a number of ways retirees can balance their budget while still carrying debt. Focus on Monthly Cashflow vs. Mortgage Payoff If a mortgage cant be paid off prior to retirement, the goal changes from mortgage freedom to the ability to manage your housing costs on a new lower income. Making sure your monthly expenses do not exceed your monthly income becomes the focus. Here is an example: Jan is within a year of retirement. A divorce 5 years ago set her finances back and she will be retiring with 10 years left on her $80,000 mortgage. Her monthly payment is currently $770. She has a small amount of savings but only wants to use that for unexpected costs. She manages the mortgage and other housing costs without a problem on her current income, but with her new pension income it will be difficult. Keep Mortgage As-Is: $1915 monthly income ($915 Old Age Security and $1000 Canadian Pension Plan) -$770 mortgage payment =$1145 monthly to pay everything else Thats 40% of her pension income used up on just her mortgage payment! Refinance - Amortize $80,000 at 2.89% over 25 years: $1915 monthly income -$375 mortgage payment =$1540 monthly to pay everything else This leaves Jan with $395 more per month! Other Retirement Strategies In addition to restructuring your current mortgage, you may also consider these options: Refinance - Paying off high interest debt or debt with high monthly payments (ex. vehicle loan) into a lower monthly mortgage payment. Downsize- Does moving to a smaller or lower cost property improve your financial sustainability? Home Equity Line Of Credit (HELOC) - even if you are mortgage free, set this up now so you have a way to access your equity if you need it for emergencies or to pay for a downsize once you retire. Reverse Mortgage - people have an adverse reaction to these in Canada because of far inferior products sold in the U.S. Our reverse mortgages in Canada have the necessary consumer safeguards in place. They are an important option for someone in the later years of retirement where they often hold high equity in a property, need to access it to survive financially, cant qualify or manage the payment on a standard mortgage, and selling or moving is not a viable option. I have taken specific training in this product, and while it is not a fit for everyone, it can be life changing for those that are. Mortgage Planning - Ideally BEFORE Retirement If retirement is in your near future (1-5 years) you should be talking to me now. If you are heading into retirement with a mortgage, have a mortgage professional look at your cashflow and your mortgage options BEFORE you are on reduced income. Mortgages have become more and more difficult to qualify for and you may not qualify for what you need once you are on a lower income. Planning ahead while you are still on your pre-retirement income can be much easier and give you access to more mortgage products. If you are already retired there are still options. Yes, you can qualify for a mortgage in retirement! It just may be a much lower amount. Contact me to see how a mortgage can be incorporated into your retirement plan.

Its here! The First-Time Home Buyer Incentive (FTHBI) officially kicked off on September 2nd, and is available for mortgages with closing dates/possessions starting November 1st. Almost all large lenders are now on board to process them. Program Basics Qualified buyers with a household income of $120,000 or less can apply for a Government of Canada shared-equity loan that will provide an additional 5% of down payment on a re-sale home, or an additional 10% down on a newly built home. The additional down payment is in the form of a shared-equity loan that will be registered to your title as a second mortgage. This loan will lower your mortgage and therefore decrease monthly mortgage payments, making home ownership more affordable. Repayment is due when you sell or after 25 years, whichever happens first. It can be prepaid at anytime without a pre-payment penalty. The amount you will pay back is the same percentage you borrowed from them, but at the fair market value of your property when you re-pay. They share the equity you gain or the loss you incur, depending on what your market value has done. For more details check out the Government website link below or call me 780 756 5363: https://www.placetocallhome.ca/fthbi/first-time-homebuyer-incentive.cfm The Incentives Impact - Example Without Incentive: $400,000 Purchase price - $20,000 Minimum down payment of 5% = $380,000 Mortgage + $15,200 Mortgage default insurance premium of 4% = $395,200 Total loan amount Monthly payment based on 2.64% rate over 25 years: $1,798 With Incentive (On Newly Built Home): $400,000 Purchase price - $20,000 Minimum down payment of 5% - $40,000 Additional 10% down payment from the Governments FTHBI = $340,000 Mortgage + $9,520 Mortgage default insurance premium of 2.8% = $349,520 Total loan amount Monthly payment based on 2.64% over 25 years: $1,590 PAYMENT SAVINGS: $208 per month DEFAULT INSURANCE PREMIUM SAVINGS: $5,680 Key Benefits: Lower Payments / Home Affordability - your monthly payments are lower which allows you more cashflow, or a way to pay down your mortgage faster if you use the savings to pay it down. Transaction Savings - the media and government have focused on the lower payment aspect of the incentive, but in my opinion an even greater perk is the reduced mortgage default insurance premiums when the additional down payment from the incentive is factored in. On my example above, the transaction savings of $5,680 are very significant. NOT Just For First-Time Buyers - the programs definition of a first-time buyer may surprise you as it does not line up to the CRAs definition of first-time buyer for the RRSP program; it is far more flexible, and only one borrower needs to meet the definition. The FTHBI will actually qualify many people who already own a property or who recently owned but had a marital breakdown. Here is their definition: You are considered a first-time homebuyer if you meet one of following qualifications: you have never purchased a home before you are experiencing the breakdown of a marriage or common-law partnership (even if you dont meet the other first-time home buyer requirements). in the last 4 years, you did not occupy a home that you or your current spouse or common-law partner owned At least one borrower must be a first-time homebuyer, as per the definition. Negative Impacts: I would be remiss to list benefits and not the negative impacts of this program. Here are some considerations before you jump on the FTHBI bandwagon: Cost Of The Loan Uncertain - The cost of payback is the same percentage that you borrowed, but applied to the market value of your home when you sell, pay out the equity program early, or hit the 25-year point at which you have to pay it. You cant calculate what the loan will cost you without knowing the market value when you pay it out. Flippers and Renovators Beware - if you plan to extensively improve a propertys value, then the government will also benefit from that improvement. This would be an example of when it would not make sense to use the FTHBI. Complexity And Unknowns - No question, using the program will make future borrowing on your property more complex. Expect more hoops at refinance, renewals, and sale as the FTHBI will be registered as a second mortgage and will have to be addressed in each of those scenarios. And with any new program, until borrowers start using it and more time has passed, we wont know all of the impacts. Increased Legal Costs - There will be more legal costs to a transaction because this requires two mortgages, not one, to be registered. Your lawyer may also charge you more to process for the same reason. I do think the default insurance premium savings, particularly with a 10% incentive on a new-build, outweigh these costs but you should understand them. This program is complex even for those of us working in mortgages everyday. If you are interested in using the FHBI, reach out to me early to answer questions and understand if this will be a fit for your purchase.