Many seniors are not changing their spending habits to match their coming reality
At 65, will you still have a mortgage hanging over your head? Are you a Boomer over 50 who will still be making mortgage payment once you reach normal retirement age? If so, you’ll be like 35% of other senior homeowners, according to Will Dunning, chief economist with the Canadian Associated Of Accredited Mortgage Professionals. As a senior, a mortgage obligation can take money away from the resources you need to carry you through the remainder of your life. Unless you are willing to cut expenses, you could be in trouble.
Why Seniors May Still Have Mortgages
With the 25 year mortgage common, you might be in that situation if you took out a mortgage past the age of 40. You may have become a homeowner later in life, but Dunning believes that many seniors are still paying mortgages because they refinanced their homes at an earlier time to pay for a wedding or a loan to their kids for a down payment or some other purpose. Their thinking might have been that the kids would inherit the money anyway, so they might as well have it when they need it. A survey from the Bank of Montreal shows that 30% of first-time homeowners look to parents or other family members to help with the down payment while in expensive Vancouver, 40% expect help from parents
The Trade-off For Having A Mortgage In Retirement
This generosity makes some sense, but the great risk is that it will tap into monies that seniors need to live on. With people living longer, the average senior will need to keep working into retirement, cut expenses, and not take on new debt area to make it. In contrast, according to Jeffrey Schwartz, executive director of Consolidated Credit Counseling Services of Canada, Inc., many seniors are not changing their spending habits to match their coming reality. Seniors are both adding new debt and taking on new mortgages which could put them in trouble if interest rates rise and the payments follow. “It could send them into a tailspin,” says Schwartz.
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Some banks hesitate to issue new mortgages to seniors, out of fear they won’t pay. In case of default, the bank always looks like the bad guy when the borrower is a senior. Though only .05% of senior debt ends up in bankruptcy, bankruptcy in this age range has increased from 6% to 8% over the last five years. Some seniors attempt to rid themselves of debt by paying it off with RRSP funds, but most analysts question whether this is a good idea.
How Do Your Finances Line Up?
As you approach retirement years, what does your financial picture look like? If you are thinking of taking out a new mortgage or even if you find yourself holding a mortgage or considerable debt, you need to ask yourself some hard questions:
– How far into your retirement does or will your mortgage extend?
– How far into retirement are you planning to work?
– How much debt do you have and how do you plan to extinguish it?
– Are you making it every month or feeling squeezed?
– Are you prepared to cut your spending so you can both pay off your debt and save for the future?
– Do you have any other assets you could extinguish to reduce your debt or monthly living expenses?
Whether you are paying house or only it out right, can you still afford the extra expenses associated with home ownership, such as taxes, landscaping, repair, and maintenance?The answers to these questions might influence your housing plans in your post retirement years. Your concern is to have the resources to hold you through the rest of your life.
If you have a mortgage or are considering taking out a new one, will you be able to adjust your spending enough to compensate?Should You Tie Yourself Down With A New Mortgage In Your Senior Years?Moving to a less expensive home or even renting a property can be a solution to reducing your monthly outlay while allowing you to save, or at least not withdraw, from your savings at the present time. Even if you are in a good position, you need to do serious thinking before tying yourself down with a new senior mortgage.
Before you make any move, make sure to consult with your financial adviser for additional insight on how to proceed. If you’re interested in seeing housing alternatives in our local Halifax market, I am happy to share my insights with you and show you some options. I’m an experienced Realtor® with years of working with Boomer and senior clients, and I look forward to the chance to help you – just give me a call.
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Roy Thomas SRES® (Senior’s Real Estate Specialist) is a REALTOR® with Sutton Group Professional Realty. Since 1991, Roy specializes in helping retirees with their later in life real estate transactions. Call Roy at 902-497-3031 or contact Roy here
