Retirement ain't what it used to be

Dregs of the Great Recession are still being felt

By Neil Sharma

20 Jun. 2018

Dregs of the Great Recession are still being felt.

A growing number of Canadians are retiring with mortgages because of the hardships they endured during the economic crisis a decade ago.

“They had RRSPs or other investments, and they all that potential compounding interest, so if they had invested $100,000 and still had that principal $100,000 after the crash, they were considered lucky,” said Huong Luu, a real estate coach, consultant and independent mortgage agent.

“From a real estate investment point of view, a lot of individuals who purchased on appreciation lost their shirt from the economic crash. A lot of them purchased preconstruction, new development, new properties all under the assumption that appreciation would be there. They overleveraged themselves financially and when the crash came they couldn’t make their payments, so they declared bankruptcy or sold their properties at half the price, or walked away altogether.”

In addition Great Recession aftershocks, another reason Luu says a quarter of Canadians are carrying mortgages into retirement is because their adult children need a leg up.

“A lot of retirees don’t feel like they can retire. They took a big hit and work past age of retirement because of it,” she said. “What you’re seeing now is an increase in retirees who will refinance under a CHIP Reverse Mortgage. It’s not just the economy faltering that created this 25%; a lot of these retirees feel an obligation to help their children, so they pull money out of their equity and increase debt load on their property to help. Then they help their children buy their property, or do some investments with their children.”

Broker Corinna Smith-Gatcke of The Mortgage Advisors in Brockville indicated that retirement isn’t quite as arduous in her neck of the woods—only 10.2% of households with persons 65 years old and over are carrying mortgages—but concedes retirement isn’t what it used to be.

“It’s just a sign of the times,” Gatcke-Smith said of retiring in debt. “People are extended, so they’re working longer and later in life to service their debt.

“In a larger centre, I think it’s almost unavoidable. In places like the GTA and Vancouver, how do you save enough for a down payment when housing is going for over a million dollars? It changes the landscape for first-time buyers, but in my market you can still buy a house for under $200,000 and parents can give a $7,500 down payment without breaking the bank.”