Lifestyle | Buying a first house at 54: a good idea?

Owning your own home is a dream for many people, and it comes with a host of benefits. Starting with really feeling at home without fear of being evicted from your home. But it also comes with a price to pay. Especially when you’re nearing retirement and you’ve only accumulated what you need to live a comfortable old age.

Martine Letarte
special cooperation

The situation

Stéphane* and his spouse Isabelle* are both 54 years old. When they met 12 years ago, they decided to leave their precarious field to pursue more regular work with a retirement plan that would provide them with some financial comfort. They have always been tenants, but after being evicted twice in 10 years, they are getting fed up.

“My mother is ready to sell us her house in Laval for $425,000, which, according to my research, is below market value,” says Stéphane.

Additionally, a mortgage lender told the couple that they could borrow $500,000 with no problem. But, despite their “modest” lifestyle, Stéphane wonders if he and his wife can really afford such a purchase. “If something unexpected happens, will we have enough backbone to pull through? »

He also wonders how much they should put down. “Because if we decide to put 20% of the sale price to avoid paying Canada Mortgage and Housing Corporation loan insurance [SCHL], we won’t have much savings left. »

Maintain good family relations

Having the possibility of buying a house below the market price is a good boost in accessing property in the Montreal market. But Simon Préfontaine, financial planner at Lafond Services Financiers, is primarily concerned about a very human factor: Stéphane has a sister.

“If the house is worth $525,000, that would mean that the mother would give Stéphane and his spouse a gift of $100,000, illustrates Simon Préfontaine. It would not be fair to the sister unless the mother gave her a similar sum. If that’s not possible, the couple might consider buying the house at fair market value to protect the good family relationship. »

We must also think about what would happen if the couple separated. “Let’s say they separate six months after buying the house below market value, sell it and split the profits 50/50, Isabelle will have made a lot of money on the back of the Stephane’s mother, says the financial planner. It is possible to draw up documents with a notary so that the mother’s gift will revert completely to Stéphane in the event of separation. »

thinking about retirement

To find out how comfortable the couple can look forward to old days with their current holdings, Simon Préfontaine made a retirement projection. He took into account the couple’s savings, what he had accumulated at the Régie des rentes du Québec and in his pension plans. His analysis does not take into account the house that Stéphane and Isabelle still have not bought, nor the future savings that they could make. Results ? Stéphane and Isabelle have enough money, but they don’t have a surplus if they retire at age 65.

“With a 4% return per year, which is equivalent to a balanced portfolio, the couple would have the equivalent of $53,000 per year once the taxes have been paid, specifies the financial planner. This corresponds to 69% of their current income, while the Quebec government recommends providing approximately 70% of their income for their retirement years. »

So if the couple dips into their Registered Retirement Savings Plans (RRSPs) to use the Home Buyers’ Plan (HBP) — which can go up to $35,000 per person — they will need to repay not only the capital released, but also the return that would have been made if that money had continued to profit.

What about the tax-free savings account for the purchase of a first property (TFSAP)? “The federal government has not given many details on this new program, except that we can contribute $8,000 per year from 2023 in order to invest them in a down payment, specifies Simon Préfontaine. But we cannot combine RAP and CELIAPP. So the CELIAPP would probably give them too little cash when they want to buy the house soon. »

Instead of continuing to save for the next few years, the couple could also decide to sell the house after a few years of retirement to have cash.

“Another possible option would be to later take out a new mortgage on the house,” says Simon Préfontaine. This could be interesting for them since as they have no children, the question of inheritance is not very important. But the real estate market is not as good as it used to be and in order to be able to remortgage, their house must have appreciated in market value. »

Determine the down payment amount

Since the couple is nearing retirement and needs their savings for their old age, Simon Préfontaine would therefore advise them to make the smallest possible down payment on the house, namely 5%.

“Stéphane and Isabelle would therefore have to pay for CMHC’s mortgage loan insurance because their down payment would be less than 20%, but it is more advantageous in their case to keep their savings for retirement, which will continue to generate returns. , he says. And their home, regardless of their down payment, will take on the same value over time. In addition, mortgage interest rates can be slightly higher when borrowers do not have CMHC insurance. »

A small down payment will also allow the couple to assume the many costs related to the purchase of the property, such as the notary, the move, the layout of the house, not to mention the transfer duties. “He will breathe better, says Simon Préfontaine, if he keeps as much money as possible. »

* Although the case highlighted in this section is real, the first names used are fictitious.