What’s the best way to use your home equity in retirement?

You are retired and your CPP and RRSP are not enough income for your liking.

“Hey”, you think to yourself, “I have some equity in my house. Why not use some of that? “

This week, In Your Corner looks at the best ways to start using that capital.

Moshe Milevsky, a finance professor at York University’s Schulich School of Business, is unequivocal about the best option.

“The only real way to monetize it is to sell and downsize or move somewhere where real estate is cheaper,” Milevsky said.

$ 714.21

Average CPP payment per month.

$ 618.45

Average monthly payment of the old-age supplement.

$ 802.08

RRIF monthly withdrawal on balance of $ 250,000. *

$ 1,604.17

RRIF monthly withdrawal on a balance of $ 500,000. *

* Based on a minimum annual withdrawal required at age 65 of 3.85 percent of the account.

Source: Government of Canada

The next set of options, which Milevsky calls option B, is to obtain a fixed loan, a home equity line of credit, or a reverse mortgage. While all of those options have the advantage of not having to move out of your current home, they also share a couple of disadvantages, he notes.

“There is risk in each of them because nobody knows exactly where the housing market will go or what the interest rates will be,” Milevsky said. (Reverse mortgages generally have the highest interest rates of those three options.)

Another option, which Milevsky acknowledges might be awkward for some families to mention, is to talk to the people you intend to be the beneficiaries of your estate when you die. See if they can pay you a monthly stipend.

“You can tell them ‘someday you will get this house or its value. Could you help me? ‘”Milevsky said. If they complain about cutting your inheritance, you can always point out that if you don’t get it from them, you will likely have to borrow from a bank, which would be cutting your inheritance anyway, Milevsky added.


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