As Canadians transition into retirement, the decision of whether to sell or stay in their homes often sparks important conversations. For many, the family home represents memories and stability, but it can also be a financial burden as retirement approaches. Some consider renting or downsizing, while others wish to remain in their homes and unlock some of the equity they’ve built to bolster their retirement savings.
In this article, we explore the advantages and disadvantages of owning and renting in retirement, considering the financial, lifestyle, and emotional aspects of this decision to help you weigh your options. We also explore how the CHIP Reverse Mortgage can be a strategic tool to tap into your home’s equity and age in place in the home you love.
Pros and cons of owning a home in retirement
There are good reasons to own a home after retiring, but there are also disadvantages, such as rising property taxes and unexpected maintenance costs.
Advantages to owning your home in retirement include:
- Greater stability. Owning your home provides greater stability and control over your living situation. Property owners or landlords cannot increase your rent or ask you to leave your residence. You decide when – and if – you want to change your living situation.
- Continue to build equity. While home prices can fluctuate, they tend toincrease over time. By staying in your home you can continue to build equity, which can contribute to a larger inheritance for your heirs. You can also tap into this equity through a home equity line of credit or a reverse mortgage to help pay for your expenses in retirement.
- Tax benefits. Another advantage of home ownership is the exemption from capital gains tax when you sell your primary residence. You must designate your property as your principal residence on your tax return in order to qualify for the exemption.
- Staying in your home during retirement helps you stay connected to your community and the memories you’ve made over the years. It can mean being near your family and friends and engaging in the activities that have provided you with meaning and fulfillment.
Here are some disadvantages to owning your home in retirement:
- Financial risks. Home ownership may seem financially rewarding, but there are risks that enter into the equation. Fluctuating home prices, high interest rates, unexpected maintenance costs, along with rising property taxes and home insurance can become a financial burden.
- Liquidity concerns. As we saw during the pandemic, higher interest rates and rising inflation led to a slowdown in the housing market as buyers stayed on the sidelines. If you need to sell your home quickly to raise cash during a housing market downturn, you may be forced to sell at a lower price than you expected.
A reverse mortgage can help you stay in the home you love
One way to stay in your home and be able to access the cash flow you need during retirement is with a reverse mortgage. A reverse mortgage is a type of mortgage loan for homeowners aged 55 or older. It allows you to tap into the equity you’ve built in your home without having to move or sell – by converting a portion of your home’s value into tax-free cash. The funds can be used to meet a number of financial needs, including home renovations, building an investment portfolio, or taking a much-needed vacation.
Pros and cons of renting in retirement
Renting your home in retirement can be less stressful than owning, as you don’t have to worry about an unexpected roofing job. However, you do give up some control over your living situation as landlords can raise rents or choose not to renew your lease.
Here are some of the main advantages of renting your home in retirement:
- Greater freedom. Owning a home comes with responsibilities, such as maintenance and repairs. When you rent, you don’t have to worry about yard work or snow clearing. If you feel the urge to travel, you can usually go away when you choose without worrying about someone taking care of the property.
- Cost savings and financial benefits. You don’t have to pay for renovations, ongoing maintenance, insurance, and property taxes when you rent. Additionally, there is no need to worry about fluctuations in the housing market. Renting can also free up cash for investment purposes that can help boost your overall income in retirement.
- Flexibility. Renting allows for greater mobility, whether it’s to escape to a warmer climate or be closer to friends and family. It may be a good option for empty nesters while they consider whether to downsize to a condo.
Here are some of the disadvantages of renting in retirement:
- As a renter, there are many things beyond your control, such as rent increases or landlords deciding not to renew leases, especially in condo rentals. The prospect of having to move frequently can be especially stressful and costly for older Canadians.
- Inability to customize your home. Renting restricts your ability to modify your living space and enhancements to make your home more accessible usually require the permission of your landlord.
- You don’t build equity. One key drawback to renting is that you don’t build equity in your home. Unlike homeowners, renters cannot draw from their property’s value to meet their financial needs.
Should retirees rent or own in retirement?
Deciding whether to buy or rent in retirement depends on your personal objectives and financial considerations. For those who see their homes as a part of their retirement income strategy, it’s important to be aware of options that allow you to access some of the equity you’ve built in your home, such as a reverse mortgage. On the other hand, renting may free up cash to invest in the markets to help bolster your retirement savings.
One viable approach is to downsize to a smaller residence after selling the family home. This allows you to maintain property ownership while freeing up capital that can be invested elsewhere.
Is it better to buy or rent when you are 70 years old?
In addition to the financial considerations, lifestyle factors will play a significant role in your decision. For retirees who plan to spend parts of the year in warmer climates, renting may offer the freedom to avoid maintaining a property, but you also give up some control over your living situation. Moving is never fun at the best of times, but it can be even more stressful the older you are.
Ageing in place with the CHIP Reverse Mortgage
Fortunately, there is a financial income solution to help Canadians age comfortably in place and provide cash flow in retirement: The CHIP Reverse Mortgage from HomeEquity Bank allows Canadian homeowners age 55+ to access up to 55% of their home’s value and turn it into tax-free cash. With a CHIP Reverse Mortgage, you don’t have to make any regular mortgage payments or pay back the loan until you move or sell.
You can choose to receive the tax-free funds as a lump sum or in regular monthly deposits. The funds can be used to meet any of your needs, such as paying for your lifestyle expenses, debt consolidation, building an emergency fund, or home renovations.
By tapping into the equity you’ve built in your home, a reverse mortgage gives you the financial cushion to delay receiving your old age pensions, allowing you to maximize the CPP and OAS benefits available to you.
Learn more about how a CHIP Reverse Mortgage works and how it can help with your cash flow needs in retirement or call us toll-free at 1-866-522-2447.
