It may be tempting to see your home's value as a potential source of retirement income. While some homeowners consider downsizing as a way of unlocking retirement funds and others may look to borrow against their homes, there are reasons to exercise caution when relying on home equity for retirement. Here a few considerations to keep in mind:

You may not move

While you may be planning to sell your home and downsize, there is always a chance you may eventually decide not to move. Recent reports suggest seniors are now less likely to sell their homes before age 85 – the sales rate among those aged 75 or more has been declining since the 1990s.¹

Not only can selling a lifelong home be emotionally difficult, but many seniors also prefer to stay close to family, friends or their community to maintain their independence. Some opt to "downsize from the inside," using only a portion of their homes to reduce costs, such as heating.

Low housing supply

Even if you do plan on downsizing or renting, will you be able to find suitable accommodation? Securing an appropriate replacement may be more challenging when housing inventories and rental properties are limited.

Moving can be expensive

The costs associated with moving homes can quickly add up. Real estate fees, legal fees, land transfer tax, staging and other expenses can become significant. Plus, there may be other unanticipated expenses that come with a new dwelling, such as maintenance, renovations and, if you end up in a condo, monthly management fees. All of these costs can erode the net financial gain you expected to realize by downsizing.

Higher interest rates

Recent reports suggest that approximately 25 percent of retirees carry mortgages as individual wealth has shifted to real estate.² Many mortgage holders today have seen mortgages reset at higher rates, leading to lower disposable income, especially for those on fixed incomes.

While it's possible to access home equity, this move has become more costly with rising rates. Although not common in Canada, reverse mortgages may allow you to borrow up to 55 percent of your home's equity. However, they often come with high interest rates and there are few large providers.

More commonly, a home equity line of credit, often secured prior to retirement when income is high, allows you to draw on the line as needed and pay interest only on what you borrow.

Moving forward carefully

These are just a handful of reasons to proceed with care when considering using your home's equity to help fund your retirement. For a deeper discussion on this, or any other aspects of retirement planning, please contact my team.

Contact Lara Austin
Senior Portfolio Manager and Wealth Advisor
250-334-5606 | lara.austin@rbc.com
www.LaraAustin.com

References

1. "Canadian seniors not downsizing, partly owing to lack of options," S. Peesker, Globe & Mail, 02/12/24
2. "Wealth tied up in real estate can hurt your retirement," R. Carrick, Globe & Mail, 11/30/23, B10