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How Do You Integrate Mortgage Planning Into a Retirement Strategy?

How Do You Integrate Mortgage Planning Into a Retirement Strategy?

To provide you with valuable insights on integrating mortgage planning into a comprehensive retirement strategy, we asked mortgage advisors and brokers for their advice. From aligning mortgage with cash flow objectives to utilizing the Smith Manoeuvre for wealth building, here are the top four instances shared by these professionals.

  • Align Mortgage with Cash Flow Objectives
  • Leverage HELOC Before Retirement
  • Consider Reverse Mortgage for Income
  • Utilize Smith Manoeuvre for Wealth Building

Align Mortgage with Cash Flow Objectives

I can't recall an instance where retirement planning didn't enter the conversation. A proper mortgage strategy should always dovetail with the client's cash flow and investment objectives. There are some obvious reasons for this sort of planning.

1. A mortgage payment is expensive. Most people are working with a finite amount of cash every month to meet needs, invest, etc. Making sure a client has the ability to invest for their future while living in the present is critical.

2. Current homeowners have a tremendous amount of equity, on average over $200,000 today. Learning how to deploy that equity as an asset to build additional wealth should be on the radar of everyone looking to build wealth. Consolidating debt, buying an investment property, or creating capital for a business venture or a portfolio might make sense. 85% of the average retiree's wealth is in their home.

3. If and when someone decides to buy a new home, they get to decide the amount of equity to be used for a down payment. This is a great time to think about taking some of that potentially tax-free earnings and paying off debts, starting a college fund, or lump-summing an account to supplement their retirement. ex.: A large down payment can keep the housing payment low so you can invest monthly, but taking a larger mortgage and creating a lump sum that grows independent of the home could easily outpace any monthly savings plan. This strategy won't be for everyone, but it can work wonders for someone a little investment-savvy or with a good advisor on their side.

Others might be better off with a 15-yr fixed to get the house paid off faster because otherwise they'll blow the savings. Everyone is different, so asking the right questions and designing the right plan with everything in mind ensures you're not just doing okay by the client but you're helping them make the best financial decision for them, all things considered.

Jeff Nunley
Jeff NunleyCertified Mortgage Advisor, NOVA Home Loans

Leverage HELOC Before Retirement

I often find myself doing this for clients who are nearing the end of their working careers. One piece of advice I frequently recommend is adding a Home Equity Line of Credit (HELOC) to their home before they enter retirement. It can be challenging to apply for credit once income is reduced to a pension, so by leveraging their current employment income, they can qualify for a higher amount. This HELOC can then be kept in place throughout their retirement, providing a safety net for emergency expenses, renovations, or other needs that may arise.

Consider Reverse Mortgage for Income

In one notable instance, I worked with a couple in their late 60s who were concerned about their retirement finances. They owned their home outright but had limited liquid assets. After assessing their situation, I recommended a reverse mortgage as part of their retirement strategy. This allowed them to unlock the equity in their home, providing a steady stream of income without having to sell their property. By integrating this mortgage solution, they were able to maintain their lifestyle, cover medical expenses, and even travel, all while preserving their other investments. This holistic approach ensured they had financial security and peace of mind throughout their retirement.

Tim Walker
Tim WalkerMortgage Broker, MortgageTim

Utilize Smith Manoeuvre for Wealth Building

I work with clients daily to integrate mortgage planning into a more comprehensive wealth-building and retirement strategy. As a Smith Manoeuvre Certified Mortgage Professional and having implemented the strategy myself since 2005, I help clients understand how they can create tax-deductible interest on their mortgage, build wealth, and lower their taxes all in conjunction with each other. The wealthy have been taking advantage of this legal strategy for many years by writing off the interest from borrowed funds to invest in unregistered investments with the intent of earning a rate of return.

With prices of homes in major Canadian cities ranging from $300K-$3M, homeowners are investing the majority of their hard-earned money into paying down a mortgage, which means they are not investing those funds to grow wealth for retirement. I want to be part of changing that for my clients, and the Smith Manoeuvre is one of the best possibilities that exist for them. For those who may not want to do investing, we also look at what the right mortgage product is for them leading up to retirement before they retire, as their borrowing power is greater while still employed. This can prevent them from having to look at a more costly reverse mortgage option in the future to be able to remain living in their home or funding their lifestyle.

The majority of Canadians do not know how the Smith Manoeuvre can work for them, which is why Fraser Smith created the Smith Manoeuvre over 30 years ago as a completely tested and legal strategy for Canadian homeowners to consider when they have 20% equity or more in their home. Your home is the single largest investment you will make, and knowing how to use your home to build wealth and lower your taxes can be a part of a successful retirement strategy when done so under the guidance of knowledgeable Smith Manoeuvre Certified Professionals such as accountants, Certified Financial Planners, and Mortgage Brokers.

Integrating the mortgage planning as part of a retirement strategy is part of every conversation with all of my clients, even if they only have the minimum down payment. Life changes, family structure, and employment changes are all possibilities of the future and need to play a role in making a mortgage decision.

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