Should I Sell And Rent When I Retire?

We receive this question from many of the retirees who visit our Mortgage Architects Office on the East Hamilton Mountain. The answer to this question “should I sell and rent when I retire” is almost always a resounding: no. Here’s why…

Whenever You Rent, You Are Paying Down Somebody Else’s Mortgage

If you’re not paying down somebody’s debt with the rent you are paying them, then you are probably making them a lot of money. So whenever possible, you should try to pay down your own mortgage and remain a homeowner. The question is: can you afford it?

It’s All About Cash Flow

If after retirement you do not have enough income to make the mortgage payments, property taxes, insurance and still live a comfortable life, you probably need to sell. But the fact of the matter is that many mortgage payments are close to rental payments. Downsizing could be an option. Another option is a reverse mortgage. A reverse mortgage introduces a bunch of new elements into the mix such as your age and the amount of equity you have in your home.

Financial Illustration

Recently we had an elderly couple in our office who was contemplating the question”should I sell when I retire”. In their case, they have a $500K home and $250K in debt (1st and 2nd mortgage). They had no cash flow after their bills were paid. So, we laid out 2 scenarios for this couple. The first scenario was: stay in the home and get a reverse mortgage. The second scenario was to rent. In their case, it made more sense to stay in their home (where they incidentally wanted to be anyway)!

Scenario 1: Remain In Their Home

Assuming 2% appreciation (which is conservative)

$500K home

Borrow $250K reverse mortgage

After 10 years $170K of equity remains in the home

-$30K in property taxes

=$140K remaining

Scenario 2: Sell And Start Paying Rent

If they leave and start paying rent:

$250K proceeds of sale

Pay $1500/mth rent x 10 years – $180K in rent!!!!!!!

=$70K remaining in savings

By remaining in their home, they have retained $70K more of their savings! Isn’t that crazy? And they live with dignity in the home that they cherish and love.

Everyone’s situation is different but when contemplating the question: “Should I Sell And Rent When I Retire”? Think carefully and please speak with an expert!

Robert Floris is a Mortgage Broker. His office is located at 651 Fennell Avenue East in Hamilton, Ontario. If you would like to speak with Robert, he can be reached at 905-574-9200 #215. Alternatively, you can contact Robert here.

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