Retiring mortgage free? Not the reality for many Canadians

Millions of Canadians are facing retirement with a tough housing choice: downsize or continue to make monthly mortgage payments.

While the plan to be mortgage free in retirement is often cited, the reality is that three in ten of those who plan to retire this year or in 2025 will still have a home loan to pay for, according to a new report from Royal LePage.

The data suggests that the burden of mortgages into retirement years is a growing issue as half as many retirees had mortgage debt ten years ago. This is likely reflecting affordability issues that are affecting more Canadians of all ages today.

“The benefits of entering retirement as a homeowner with a paid-off mortgage are clear: more disposable income, insulation from interest rate changes, and even the emotional security that comes from knowing you’ll always have a place to live,” says Phil Soper, president and CEO, Royal LePage. “In the era of rotary phones and station wagons, burning your mortgage was the economic finish line. Today’s retiree reality is much more nuanced.”

For 45% of survey respondents the dream of a mortgage free retirement is certain as they have cleared the debt already while another 6% say it will be by the time they retire.

Not that having a mortgage to pay is necessarily the issue it might have been for past generations of retirees.

“While previous generations may have viewed mortgage-free retirement as the only option, today’s retirees tend to be more open-minded,” says Soper. “Traditional employment income may have dried up, but many are still comfortably managing their expenses and servicing mortgage payments, with income from investments, part-time work, or a working spouse.”

Those approaching retirement are split on whether they will downsize within two years of retiring (46%) and those who will not (47%). But it may not be a purely financial decision as homeowners weigh the benefits of space to entertain friends and family with the responsibility of a larger home and garden during their ageing years.

And Soper says home price appreciation over the past 25 years has been a double-edged sword for today’s retirees.

“On one hand, it has delivered unprecedented financial gains. On the other, this generation is far more likely to have carried mortgage balances that would have been unimaginable to their parents or grandparents,” he explains. “Our research confirms they are also much more likely to have provided financial assistance to their children to assist in their home ownership dreams.”

Overall, the report highlights how opinions and priorities around housing are changing along with other trends seen in retirement, with longevity the biggest of all.

“Compared to their grandparents, today’s retirees are enjoying about fifty per cent more years after turning 65. They’re working longer, staying active, and in many ways, continuing the lives they led during their working years – just without the job,” says Soper. “It’s no surprise their attitudes toward home ownership have evolved with the times. With people buying their first homes later and working longer, it’s increasingly common for Canadians to carry a mortgage well into retirement, often by choice rather than necessity.”

Source: Wealth Professional