Half of Canadians plan to retire with mortgage: survey

Garry Marr

The one thing Canadians won’t be retiring anytime soon is their mortgage debt, according to a new survey.

Bank of Montreal says 51% of Canadian homeowners plan to carry their mortgage into their retirement years.

“It’s a phenomenal number I think,” said Tino Di Vito, head of the BMO Retirement Institute.

‘People are more sophisticated in their approach to personal finance today than the previous generation’

But Phil Soper, chief executive of Royal LePage Real Estate Services, said times have changed and he believes Canadians can handle the burden.

“People are more sophisticated in their approach to personal finance today than the previous generation,” says Mr. Soper. “People are living longer, working longer and making real estate plans longer or further into their lives.”

Another trend, one which was not considered by the industry before, is people moving into more expensive, upscale homes after retirement. “Traditionally people paid off their mortgage and people lived in their home until it was time to downsize,” he says. “It’s not necessarily a dangerous trend.”
Another part of the trend could very well be strategic. With rates on a five-year closed mortgage at about 3.5%, paying down that debt might not seem as high a priority for many homeowners. That logic might not be so sound, says Doug Porter, deputy chief economist at Bank of Montreal.

“The extremely low level of interest rates is acting both as an inducement for people to take on more debt than they would have in the past and on the flipside not encouraging them to save as in the past.”

People could end up working longer and it might also mean there will be that much less equity in the home you’ll be leaving to heirs.

The attitude of homeowners could also reflect the longer amortizations the mortgage industry saw before the government cracked down on the rules, Mr. Porter said.

Traditionally, mortgages were amortized over 25 years, but that number ballooned to 40 before Ottawa twice lowered the limit, which now stands at 30. Many are calling for it to be reduced back to 25 years.

Ms. Di Vito says the issue is how it’s affecting retirement with half of Canadian homeowners saying their debt load was hindering their ability to plan and save.

‘Carrying debt into retirement is a threat to financial security’

“Carrying debt into retirement is a threat to financial security,” says Ms. Di Vito, who believes Canadians need about 70% of their pre-retirement income to maintain the same lifestyle. “That assumes other expenses such as mortgages are already taken care of.”

She says half of Canadian homeowners age 50 to 59 still have mortgage debt based on Statistics Canada information. By 60 to 69, 25% of those people still have a mortgage.

It doesn’t help that real estate prices continue at all-time highs. The Canadian Real Estate Association said this week the average home price reached $372,608 in April. In Vancouver, even though prices dropped almost 10% year over year, the average sale price in April was $735,315. Almost 60% of B.C. homeowners expect to take mortgage debt into retirement.

Author Talbot Stevens wonders how people will survive in their retirement.

“People get a hold of a line of credit and they spend $40,000 on upgrading their home. At least with that, you have something to show for it, maybe 40¢ on the dollar,” says Mr. Stevens, who worries about more frivolous spending. “We really have to be more responsible with debt and what we are using it for.”