Mom money

Ruth is 72. Spry. Her kid, Marion, is 44. Worried. Harold, husband and father, checked out eight years ago. Dead. No pension, but he left his wife of forty years a nice house.

“I’ve pleaded with her to sell it,” says M, “and even suggested she read your pathetic blog, but nothing works. This week mom told me she’s got a reverse mortgage for some ridiculous amount – like $500,000 – and I should mind my own business.”

So mom has no income other than government OAS pogey (she never worked, no CPP) and lost her part-time job at the library. In other words, she’s broke – living in a million-dollar place which she can’t afford to heat. Or pay the property taxes on. But it’s home.

Ruth ain’t alone. Thousand of wrinklies are making exactly this choice – deciding their best option is to dig into real estate equity to compensate for a dearth of savings, investments or pension income. In doing so they reap the fruit of housing inflation at the same time taking on debt that will eat its way through their net worth and their kids’ inheritance.

It’s time for a reverse mortgage update because, well, the old hippies are going nuts over them.   The amount of debt taken on in the last five years has tripled – to about $4 billion. Back in 2014 it was just $1.3 billion, which makes reverse mortgages the fastest-growing form of borrowing. For example, five years ago HomeEquity Bank (the CHIP people) was handing out about $300 million a year to the Geritol set. This year they expect to hit $900 million in new originations. And there’s competition, too, since Equitable Bank got into the RM business a couple of years ago.

Here’s the deal: people over 55 can borrow up to 55% of the equity in their homes and use the money for whatever. No payments. No repayment until they sell or croak. The funds are not taxed. It seems like a dream since they get to stay in the same house and can stop sharing meals with the cat

But it’s debt. Debt costs money. In this case the rate of interest is extreme – 5.6% or twice the cost of a conventional five-year mortgage. Since no payments are being made, the debt grows and grows with all of the accumulated interest added to the outstanding principal. So a $150,000 reverse mortgage becomes a $200,000 obligation after five years. Plus there are substantial set-up charges when the deal is arranged.

Why would someone opt for this when a conventional mortgage is cheaper or a HELOC can be arranged with much lower simple-interest payments and no increase in the debt?

Simple. It’s the new reality for wrinklies – the majority retire without pension plans, without adequate savings or investments and too much reliance on the public purse. People vastly overestimate the amount they’ll get from CPP or OAS and figure if they stop working and have a paid-off house they’ll get by – no matter what.

But houses cost a heap. Maintenance, utilities, insurance, property tax – everything’s getting more expensive, and meanwhile all that equity is producing zero income. There’s also the stress test in place, preventing people who are house-rich and income-starved from qualifying for traditional mortgage financing. Outfits like HomeEquity and Equitable Bank are exempt from that test when they hook new clients. All that matters is a piece of real estate with value in it that can be Hoovered out.

Of course, once the debt is in place, it stays forever. Seniors having a hard time buying home heating oil or groceries are unlikely to ever pay down a reverse mortgage. So when they sell or, more likely, die, their estate is responsible for it. Surprise, kids!

The lenders think they have an outstanding business opportunity, given the fact there are 9.6 million Boomers in Canada. At the same time only 25.3% of all working Canadians have a defined benefit pension – one that will yield a known and continuous income stream in retirement. Worse, a record number of retirees are now going into their post-employment years with consumer debt in place. Many have real estate, lousy savings and poor income. So, what are they thinking?

Mortgage debt in Canada is rising by about 5% a year. That’s a worry since we already owe $1.2 trillion. But reverse mortgage debt’s increasing at 25% every 12 months. And every single borrower is (a) no spring chicken and (b) doing it because they have to.

What should Marion do?

Mind her own business, of course. Like mom says. It’s her asset to squander. Being old doesn’t make you right. Just a tasty target.

 

123 comments ↓

#1 AGuyInVancouver on 01.14.20 at 4:06 pm

And Home Equity just bundled up a bunch of these and sold them to fund more! Shades of the 2008 crisis. It won’t end well.

PS. Heating oil? With Canada’s vast natural gas resources why does anybody use heating oil anymore? Maybe the Feds should fund natgas infrastructure to meet climate goals!

#2 Rick Fast on 01.14.20 at 4:11 pm

These reverse mortgage lenders will go completely kaput when home prices in the GTA fall. It will bring down our economy. Garth knows this and knows that the bubble will pop with an explosion.

#3 mitzerboyakaQueencitykidd on 01.14.20 at 4:12 pm

u ok smokey

#4 princeradar on 01.14.20 at 4:13 pm

Yup pretty sad, also because we are so attached to our stuff. We should be like the Swedish, their tradition is to slowly declutter your life as you get older so your kids don’t have to deal with a bunch of crap. If you have no stuff, no need for a big drafty old house.

#5 Dave on 01.14.20 at 4:15 pm

When is the debt problem going to finally catch up to Canada. Every few months there is a new flavor/band aid solution.

BTW its snowing in Vancouver…should but a freeze on the Chinese New Years real estate sales.

#6 FreeBird on 01.14.20 at 4:19 pm

I have two crazy proposed changes:

First, elections should happen right after taxes are due.

Second, a new electronic form to be filled, signed and submitted with personal tax returns. It could list each item our taxes pay for both by province and federally just like an invoice or even an estimate and easy to search. Certain items, sections or positions could be mandatory and greyed out, ie health care, fire/police, public education, mayor, MP etc broken down into more detail. Others like special ambassadors or services etc would be optional – choose to pay with part of your earned money via taxes or not. This could change what’s approved as tax payer funded that many don’t want/didn’t ask for but for those who do you’d be free to through this form even add more. It may give a clearer picture on level of support for certain projects/positions. There would be a transition period but over time it could give more control and transparency to tax payers. Which is why it’s a fantasy.

#7 TurnerNation on 01.14.20 at 4:22 pm

Toronto is hitting Peak Leftism. They are tearing themselves apart.
A conundrum!:

The good: Buying an electric car, signalling virtue
The Bad: A parking pad = Environmental Terrorism.

What to do. What to DO? Virtue must analyzed, codified. Think of the anarchy of people parking cars on their property.

https://www.toronto.com/news-story/9807313-toronto-warns-of-precedent-after-parkdale-homeowner-gets-front-yard-parking-pad-for-new-tesla/
A Toronto Local Appeal Body (TLAB) panel late last month overruled the city committee of adjustment’s refusal to give Gregory Pechersky permission to construct a parking pad in his Springhurst Avenue yard as part of a home renovation.

Applications for such pads have long been banned in downtown wards over environmental concerns — the removal of trees and concerns that hard pads increase stormwater runoff and the amount of sewage that can flow into Lake Ontario when the city’s sewer system gets overwhelmed.

Scarborough parking project could reshape enforcement across Toronto
Arguing for Pechersky, planner Tyler Grinyer told TLAB his appeal was driven by a desire to own an electric car

#8 Mattl on 01.14.20 at 4:22 pm

Good for the old wrinkly. She gets to stay in her home and hard to imagine she is going to blow through 500K but if she does, who cares. It’s not her kids money.

And good thing she owns a home. If her and hubby couldn’t save when homes were cheap, no way renting would have improved their situation. She would most likely be living in a one bedroom wood frame in some backwater rather then playing out the string in a home she loves.

#9 Smartalox on 01.14.20 at 4:22 pm

Since no payments are being made, the debt grows and grows with all of the accumulated interest added to the outstanding principal. So a $150,000 reverse mortgage becomes a $200,000 obligation after five years. EVEN WITHOUT ANY ADDITIONAL BORROWING!

Plus there are substantial set-up charges when the deal is arranged.

There, fixed it for you.

#10 Guy in Calgary on 01.14.20 at 4:25 pm

A predatory product that should be illegal. Unfortunately it is also becoming something that is required and will likely continue getting more popular.

#11 GBiddy on 01.14.20 at 4:29 pm

Garth – thanks to your pathetic blog, and my years of occasionally diligent reading and extended research, I was able to talk pops out of a reverse mortgage.

His place was too much for him to maintain and he’d neglected it for years, poor health and the bottle kept him from giving much of a damn, and despite decades of trying to help my efforts were mostly meaningless.

He was hooked like a winter Spring on the reverse mortgage line, but I was able to explain to him–the way you’ve done to your readers–why it was such a bad idea, and why he’s be much better off financially selling and renting (or driving an RV…).

He finally listened, much to my surprise. And he turned a $250k mortgage on a place he bought long ago for $48k into a $400k windfall at age 75. He is, as they say, set.

You will likely cringe, but I also got him set up at a certain orange financial institution in a set-and-forget balanced income fund with an acceptable MER, plus a HISA for daily spending. His investment income is now pushing $1500/month with no principle depletion, and he gets decent CPP/OAS on top of that with zero debt.

Best of all, no more fixing leaking faucets, resealing toilets, or dealing with deadbeat tenants–for him or me.

Thank you for writing about this stuff. It will never, ever get old and we need to be hit over the head to get it sometimes, but when we do…nothing but gratitude.

#12 Stone on 01.14.20 at 4:29 pm

On BNN, they keep on having video clips talking about how millennials will inherit trillions as the OK Boomers pass on. That this will be the largest wealth transfer in history.

Oh poor millennials. You have no clue that your OK Boomer parents already gave away your trillions in inheritance to the CHIP reverse mortgage company. OK Millennials, you are sooooo screwed.

As Nelson from the Simpsons would say:

Ha! Ha!

#13 Stone on 01.14.20 at 4:33 pm

The lenders think they have an outstanding business opportunity, given the fact there are 9.6 million Boomers in Canada. At the same time only 25.3% of all working Canadians have a defined benefit pension – one that will yield a known and continuous income stream in retirement. Worse, a record number of retirees are now going into their post-employment years with consumer debt in place. Many have real estate, lousy savings and poor income. So, what are they thinking?

———

That was their first mistake. They thought they were thinking. Unfortunately, thinking requires effort.

Oh well.

Ha! Ha!

#14 FreeBird on 01.14.20 at 4:40 pm

Interesting article on diff cohorts and retirement. Looks like less boomers/genX have DB plans. Media usually don’t care about us GenXers. It’s fine easier to live quietly in the masses…

https://www.benefitscanada.com/pensions/cap/2019-cap-member-survey-helping-each-generation-on-their-retirement-journey-129677

#15 Shark-Nose Tony on 01.14.20 at 4:40 pm

RM’s look like good business. Better than the one the Feds keep trying to bust me on. Where can I get a piece of the action?

#16 Stone on 01.14.20 at 4:46 pm

#6 FreeBird on 01.14.20 at 4:19 pm
I have two crazy proposed changes:

First, elections should happen right after taxes are due.

Second, a new electronic form to be filled, signed and submitted with personal tax returns. It could list each item our taxes pay for both by province and federally just like an invoice or even an estimate and easy to search. Certain items, sections or positions could be mandatory and greyed out, ie health care, fire/police, public education, mayor, MP etc broken down into more detail. Others like special ambassadors or services etc would be optional – choose to pay with part of your earned money via taxes or not. This could change what’s approved as tax payer funded that many don’t want/didn’t ask for but for those who do you’d be free to through this form even add more. It may give a clearer picture on level of support for certain projects/positions. There would be a transition period but over time it could give more control and transparency to tax payers. Which is why it’s a fantasy.

———

That’s not fantasy. That’s how condo corporations are run. The Investor owners vote down any/all expenses they can to ensure their rentals provide maximum return. That’s why condo buildings get run down so fast as the regular maintenance gets quashed at the condo board meetings. The regular owners who are so often in the minority get to enjoy living in a slum building (yay!) while the Investor owners reap their maximum profits.

#17 Re-Cowtown on 01.14.20 at 4:50 pm

#7 TurnerNation on 01.14.20 at 4:22 pm
Toronto is hitting Peak Leftism. They are tearing themselves apart.
A conundrum!:

The good: Buying an electric car, signalling virtue
The Bad: A parking pad = Environmental Terrorism.

_____

China is the world’s largest electric car market. The funniest part is that they are opening new coal fired electrical plants every week….. to power electric cars!!

You cannot make this up!

#18 Big Bucks on 01.14.20 at 4:53 pm

Selling the house and bringing in investment income would eliminate the GIS(guaranteed income supplement) of her OAS by almost $1000 a month($12,000.00/year)Maybe she thinks the house is still a better investment than stocks and she still gets $12,000.00 free money.A lot of seniors will be house rich and still draw down on the free OAS/GIS money and if it is a couple it is almost $3500.00 a month,basically tax free.

Nobody suggested she get an all-stock portfolio, and with a million invested she should enjoy an income of five grand a month and still preserve the capital. And you’re worried about her poverty-level GIS? Glad you’re not her kid. – Garth

#19 MF on 01.14.20 at 4:55 pm

Reading these stories makes me realize how lucky and proud I am of my own boomer parents:

-House bought in full that has increased in value something hilarious like 7x
-Good pension plan
-Lots of savings and investments

The formula seems simple, but also involves some luck. No lavish vacations or expensive cars (both are worthless), a healthy lifestyle (don’t drink don’t smoke eat healthy and exercise), and a plan.

MF

#20 Shawn Allen on 01.14.20 at 4:58 pm

Buffett the hoarder of money?

#168 Dfo on 01.14.20 at 3:50 pm

Defend hoarders like Buffett all you boot-licking want but illiquidity of that magnitude is not a healthy thing.

*********************************
I think that may have been directed at me.

But here are some facts:

Buffett’s salary from Berkshire has been fixed at $100k per year for decades. They count a bit more as compensation because Berkshire pays a little for his personal security. He gets no stock options from Berkshire. There are no dividends.

Buffett lives mostly on a few hundred million that he has outside of Berkshire. I doubt that he spends even one million per year.

All of his Berkshire shares wealth will go to charity. None of his Berkshire wealth will go to his heirs.

All of his Berkshire wealth is currently tied up inside Berkshire where it is invested in stocks and owned businesses and cash. That wealth is working in the economy.

Warren Buffett is still working full time at age 89.

He famously spends very little money.

Any fair look at his life would conclude that he has very little out of the economy for his own consumption compared to what he has contributed to the economy.

Other billionaires may be valid targets of attack. Attacks on Buffett are invariably misguided and uninformed.

#21 Big Bucks on 01.14.20 at 5:01 pm

Her best move would be to take in a couple senior roommates that are also drawing the OAS/GIS freebies and live it up like the Golden Girls.She has a house–who wants to live in a tiny little condo all alone?

#22 MF on 01.14.20 at 5:03 pm

#14 FreeBird on 01.14.20 at 4:40 pm

Gen x doesn’t live quietly at all. They brag incessantly about their house purchases (that only went up with the lowering of interest rates) like they are all RE geniuses.

It’s hilarious. Like bicycling a steep downhill, and being amazed at how fast you can go.

MF

#23 The guy that came up with ... on 01.14.20 at 5:04 pm

the term “reverse mortgage” must have been the supreme huckster. Reminds me of one at the PNE years ago that used to sell crappy ginsu knives. Used to cry out to the sheeple gathered around … “everything like the birds … cheep … cheep … cheep …”

#24 Captain Uppa on 01.14.20 at 5:14 pm

Every time Garth posts about something like this, I am immensely grateful that my wife and I have strong DB pensions.

#25 Linda on 01.14.20 at 5:17 pm

People will do what they think will work best for them, even if it isn’t. I’m appalled by the whole reverse mortgage thing because I feel it is like those payday loan shops – financial wolves pulling down the weakest prey. Except I don’t see any attendant improvement to the overall herd survival rate. You would think the rest of us would learn by grim example but instead most continue to follow the leaders. Sarcasm or not, ‘Stone’ is correct – thinking does require effort.

Do none of these about to be retirees have even basic math skills or a grasp on the cost of living? If their current income prior to retirement is inadequate to fully pay their bills – hence their retiring with debt – how on earth do they expect CPP/OAS to cover the tab? Or are they all betting on dying before the bailiffs knock on the door? Because a lot of people don’t own houses yet are approaching retirement. So that reverse mortgage option, bad as it is financially, isn’t available to everyone.

#26 Sail away on 01.14.20 at 5:17 pm

#11 GBiddy on 01.14.20 at 4:29 pm

Finances and aging parents

————————————-

GBiddy, some other considerations as your father ages:

1. Expect that a power of attorney will be nearly useless when dealing with banks or brokerages

2. Get joint accounts early- especially non-reg investing and checking

3. Consolidate everything in the joint accounts early. Sometimes stocks can be held in the darnedest places.

4. If or when he starts to get loopy, liquidate the TFSA and put it into the joint accounts. Trying to do anything with someone else’s registered accounts under power of attorney will drive you crazy. Not worth the hassle.

The RRIF, if there is one, should already be set up by and shouldn’t need your attention.

5. Setup automatic billpay with everything possible, and make sure you have full access for online banking.

6. Have him add you as an ‘authorized representative’ to his CRA account. Set up an online CRA access if not already in place.

I actually prefer to do all taxes in my family/extended family using TurboTax since it makes my life easier. Anytime a tax document comes in, it immediately gets placed in their tax folder. Otherwise, I’ll give them hell. Assuming people would automatically do this without instruction is an improper assumption.

Good luck.

#27 Bob Dog on 01.14.20 at 5:17 pm

One would think this sort of activity would be illegal.

Apparently the government of Canada is a corrupt incompetent criminal organization.

#28 Camille on 01.14.20 at 5:25 pm

God help seniors. So many have to go to, and then leave retirement homes because they have no money. Or downgrade.
It’s not funny to be old and worried. Very sad.
I am no expert. But this lady should absolutely sell her million? dollar home. And rent, and then use the money in a retirement home when she needs it. Not there with a rm.
Garth, you may not know how right you are!

#29 Lee on 01.14.20 at 5:30 pm

#2 Rick,

We’ve been talking about a crash in the GTA now for 15 years. Given announced future immigration levels, it may never come. Whether immigrants and the rest of us buy or not, we all have to live somewhere. I would bank on no crash.

Although I wonder what will eventually happen to the housing market and the stock market as politicians who are increasingly socialist take power. They will have no shortage of voters to bank on. Once they entrench into law that a corporation’s main objective shall be to serve its community and not its investors, which is not that far off, I am not so sure stocks will be as great a buy. Houses may lose their luster too in such a scenario. Or am I just overreacting?

#30 Shawn Allen on 01.14.20 at 5:38 pm

Reverse Mortgages

If it can be done using line of credit(s) with no net payments, and at a lower interest rate then that is clearly better. Use each line of credit to make payments on the other? Feasible? Legal? No one is giving these people a no-payments HELOC right?

In the case of Ruth here, if the money is for expenses then it should come out of the reverse mortgage monthly and not as a lump sum. That way, the debt would grow a LOT slower. Why would she possibly need anything like $500k up front? (Romance scam?)

The mortgage rate is 5.6% here. Is that usurious? Really?

Presumably, if these mortgages were eligible for CMHC insurance then the rate would be far lower. I’d be in favor of that. Is that what the haters would like to see?

I find the “hate” on reverse mortgages to be a little weird. Sort of a hold over from biblical anti-usury laws? Again, is 5.6% really a steep rate?

And why hate on the lenders? If more banks got in the market the rates would be more competitive.

#31 Damifino on 01.14.20 at 5:41 pm

It’s realty a question of timing.

I retired in 2006 at the age of 55. By 2010 I’d sold all my real estate (a principle residence and a recreational property). The proceeds were added to other investments and I’ve been living on the generated income since. I also have CPP, and now, OAS. All my original capital has been preserved and has actually grown slightly in spite of the draw I make upon it.

What was the downside? Well, I had to learn to face life as a non-homeowner, or as some might say a lowly renter. I’d been my own landlord for the previous 25 years. I was a handy, energetic fellow quite capable of maintaining my own home in all practical ways.

As I grew older I found ownership to be overrated. Homes are cranky taskmasters with endless needs and ongoing costs. Not a scrap of equity is available to finance these expenses unless a lender is brought into the picture. I couldn’t stand the idea of borrowing against a house I’d already spent over twenty years paying off.

When I went searching for rental accommodation it became clear it was possible to live in better home than the one I’d owned (and in better style, I might add) for less cost once all that idle equity was put to work. Garth has spent years detailing how that’s done so I won’t even start on that. Listen to the man.

Yes, I had to sell most of my tools and concentrate on other latent interests that don’t involve a garage or basement to putter around in. But it wasn’t that hard. I’d already had decades of building bookcases and working on my own vehicle anyway.

Paying market rent for high-end accommodation (even here in Vancouver) doesn’t hurt much once you’ve converted a pile of wasted equity into an income generation machine.

However, if you’re much older, perhaps female, think you might have only a decade left (a projection I’m personally loath to make), don’t want to leave the place where you feel comfortable, are willing to hire tradespeople to maintain your aging abode and don’t care what amount of inheritance may be available to your children (if you have any), then maybe a reverse mortgage is right for you.

#32 the Jaguar on 01.14.20 at 5:44 pm

@ #1 AGuyInVancouver on 01.14.20 at 4:06 pm
re:
‘PS. Heating oil? With Canada’s vast natural gas resources why does anybody use heating oil anymore? Maybe the Feds should fund natgas infrastructure to meet climate goals!’

This comment is interesting given many homes in Vancouver built before the late 1950’s were heated with heating oil and one still finds the odd oil tank buried in the back yards there….
More natural gas means more pipelines, so the timid would need to be convinced.
FYI…heating with oil if quite common in eastern canada, and baseboard heating also common in the maritime provinces.
Blessed is the great province of Alberta.

#33 RE_Investor on 01.14.20 at 5:56 pm

lol on Reverse mortgages. What a money losing idea for all these unsuspecting senior home owners.

All the smart seniors I know do the Sell and Leaseback. They are also more financially literate and also their kids seem well educated. Maybe their kids told them how to do this maneuver. Everyone must get control over their own finances mainly through self education. Do some research on this Sell and Leaseback idea of selling your principal residence and leasing it back.

Here’s my previous comments https://www.greaterfool.ca/2020/01/01/be-it-resolved/#comment-681776
Tell your retired parents to sell their Real Estate and then Leaseback this property. Ensure they get an air-tight lease written by a lawyer for several years at a rent below market. RE Investors are looking for great RE with Lease back features. Much better to rent the property to the original owner than to go through the problems of getting renters. Your parents will then have all the money they need to enjoy their retirement years, and also stay in the house that brought them all the joy.

Some benefits to Sell and Leaseback (it’s all a WIN!):
1.) Get market value out of your principal residence.
2.) A long term lease to continue to live in your home.
3.) You now don’t have to pay Property Taxes because the new investor / owner is responsible for this.
4.) You don’t have to worry about maintenance of your home anymore because your landlord is responsible now.
5.) You can now invest this money and have a comfortable cash flow to cover all your expenses for your retirement years.

#34 Shirl Clarts on 01.14.20 at 6:04 pm

Looks like there will be nothing left for poor Marion.

Marion, start saving now for her long term care home. You’ll need about 3K per month, or about the same it cost to raise you.

#35 Bob on 01.14.20 at 6:19 pm

What happens when the amount owing on the mortgage exceeds the value of the house?

#36 FreeBird on 01.14.20 at 6:21 pm

22 MF on 01.14.20 at 5:03 pm
#14 FreeBird on 01.14.20 at 4:40 pm

Gen x doesn’t live quietly at all. They brag incessantly about their house purchases (that only went up with the lowering of interest rates) like they are all RE geniuses.

It’s hilarious. Like bicycling a steep downhill, and being amazed at how fast you can go.
——————-
Can honestly say Im letting my generation down then. I’ve come across all ages who love to brag about their houses but there you go.

#37 ww1 on 01.14.20 at 6:26 pm

#26 Sail away on 01.14.20 at 5:17 pm
1. Expect that a power of attorney will be nearly useless when dealing with banks or brokerages

2. Get joint accounts early – especially non-reg investing and checking

3. Consolidate everything in the joint accounts early. Sometimes stocks can be held in the darnedest places.

4. If or when he starts to get loopy, liquidate the TFSA and put it into the joint accounts. Trying to do anything with someone else’s registered accounts under power of attorney will drive you crazy. Not worth the hassle. The RRIF, if there is one, should already be set up by and shouldn’t need your attention.

5. Setup automatic billpay with everything possible, and make sure you have full access for online banking.

6. Have him add you as an ‘authorized representative’ to his CRA account. Set up an online CRA access if not already in place.

This list should be permanently enshrined somewhere on the internet and be required reading for anyone with parents older than 75.

Even if your parents are doing fine and in full control, number 2 and 5 are absolutely critical to get in place as early as possible. The rest make life easier.

#38 Kitsilano Kid on 01.14.20 at 6:31 pm

Vancouver real estate keeps on going – one of the best investments over the past 50 years and going forward. In 2020 Canada will welcome over 300K immigrants – where will they go? Vancouver, Toronto, Montreal. Professionals continue to flock to YVR because its awesome mate! So to all those (including Garth) that keep slamming YVR real estate all I can say is come on down and watch me count my money baby!!

#39 Samuel on 01.14.20 at 6:35 pm

I suppose selling the million $ house and buying a condo for $500k and then investing the other $500 and pulling out $2500 a month without touching the principle is a dumb idea.

#40 GEN Xr on 01.14.20 at 6:39 pm

We’ll leave the reverse mortgages to the boomers.
My Toronto properties have almost payed for themselves, especially with the appreciation of the last decade. When the time comes we’ll liquidate and retire to the PEC property and enjoy our DB pensions. life is grand.

#41 ww1 on 01.14.20 at 6:46 pm

#28 Camille on 01.14.20 at 5:25 pm
God help seniors. So many have to go to, and then leave retirement homes because they have no money. Or downgrade.

Some annual “ball park” costs for senior care – Canadian dollars circa 2019.

1) $20K. Government subsidized old age care with four to a room. They take all of your CPP/OAS/GIS money to pay for it. Long waiting lists. Nasty.
2) $25K. Government subsidized old age care with two to a room. Like option 1 but you need more than CPP/OAS/GIS to pay for it. Less nasty but not by much.
3) $30K. Government subsidized old age care in a private room. Like option 1 & 2 but you need more than CPP/OAS/GIS to pay for it.
4) $40K – $50K. Private senior’s residence with “independent living”. One room & a private bathroom in a nice residence with 3 meals a day and planned activities every day.
5) $50K – $70K. Private senior’s residence “assisted living” – like option 4 but more hands on care for feeding, cleanliness, and getting around.
6) $70K – $90K. Private senior’s residence “memory care”. Hands on care through the final years of dementia.

Fifteen to twenty years in a seniors residence can eat through $1,000,000 pretty easily.

#42 oh bouy on 01.14.20 at 6:47 pm

Meh, this is more about Marion wanting an inheritance.
Let Ruth finish her ride at home where she’s comfortable.
reverse mortgage will get her there, probably with $$s to spare for marion.

#43 Barb on 01.14.20 at 6:49 pm

Paraphrasing what Garth published a few months ago:

Reverse mortgages are only for folks who hate their kids.

#44 Last of the GenX on 01.14.20 at 6:59 pm

#38 Kitsilano Kid

I am one of those 300K and come hell or high water, this time next year I’ll be collecting my loot and leaving for the US. I absolutely can afford a condo or a townhouse in the ‘burbs, but the city isn’t remotely worth its price tag to me, sorry. 800K C$ = 550K € for a 2br in Burnaby is ridiculous and I’m not paying that, there’s plenty of nicer places in the world where that kind of money gets you a lot more with better job markets to boot.

#45 Sail away on 01.14.20 at 7:08 pm

#37 ww1 on 01.14.20 at 6:26 pm
#26 Sail away on 01.14.20 at 5:17 pm

This list should be permanently enshrined somewhere on the internet and be required reading for anyone with parents older than 75.

——————————–

Aw, thanks

#46 Nonplused on 01.14.20 at 7:14 pm

Hmmm I wonder how the proposed capital gains tax on principle residences will work with reverse mortgages. Probably not much impact at first because the wrinklies have owned their houses long enough so that the tax won’t apply to them, but my guess is that this tax, like all taxes, will be expanded and will eventually apply to all capital gains on all primary residences.

So, in the year 2050 grandma might own a house she bought for $1,000,000 in the year 2020. In the year 2050 it is worth $3,000,000, but she also has a $1,500,000 reverse mortgage. So if capital gains inclusion stays at 50%, she’ll owe $500,000 in capital gains plus the $1,500,000 on the reverse mortgage. Oh well I guess that still leaves a million.

—————

The other thing I don’t get about a proposed capital gains tax on primary residences is how much money the government thinks this tax is actually going to collect, especially if it remains the case that it phases out over some period of years of ownership. So for example a house in Calgary has actually lost value over the last few years. What’s the point in doing all that paperwork? There was only one really big boom in say ’05 & ’06 where this tax looks like it would produce much revenue at all. Since we aren’t likely to see another oil boom in our generation, it is hard to see how this tax is targeted at anyone other than YVR and YYZ. But the booms there are probably over too. I don’t see houses tripling in value in either location by 2050 as in my above example. House prices in both cities seemed to have peaked around 2016.

http://www.chpc.biz/6-canadian-metros.html

—————

If they put a capital gains tax on primary residences, does that mean you get a deduction if you take a loss? Seems that would be consistent with current capital gains treatment.

Also, does it mean home improvements and repairs become tax deductible? At least against the capital gains? That would be how house flippers are treated now. If a flipper buys a fixer-upper for $500,000, blows $300,000 fixing it up, and then sells for $900,000, he only pays tax on the $100,000 profit. Actually less than that because he can deduct realtor fees, utilities, and property taxes as well. He only pays on his actual profit. Why would a primary residence be treated any differently?

This idea is not very well thought out. But I bet it means more jobs in Winnipeg! Someone has to carefully figure out how much tax is not owing on every single transaction.

#47 Dave on 01.14.20 at 7:14 pm

Does Stats Can have info on median net worth for seniors not including housing?

#48 crowdedelevatorfartz on 01.14.20 at 7:15 pm

@#8 Mattl
“And good thing she owns a home. If her and hubby couldn’t save when homes were cheap, no way renting would have improved their situation. She would most likely be living in a one bedroom wood frame in some backwater rather then playing out the string in a home she loves….”
+++++

My God.
Have you learned nothing?
Sell the house for 1 MILLION dollars, invest, pay yourself a nice allowance, rent a very nice apartment in your elderly years with zero maintenance costs.

OR
Get a high interest loan from shysters that will boot you out when the “Home equity” loan approaches its conclusion.
Out on the street with no where to live and no money.

#49 Ronaldo on 01.14.20 at 7:22 pm

Why would someone opt for this when a conventional mortgage is cheaper or a HELOC can be arranged with much lower simple-interest payments and no increase in the debt?
——————————————————————
Because they don’t have the money to pay the mortgage payments. But they can collect $1530 per month from OAS/GIS and can earn an additional $5000 per year from employment income without clawback to the GIS. All tax free. So about $24000 per year with HST credits. So if she can do a reverse mortgage for $500,000 and collect say an additional $20,000 per year (tax free) that would keep her going for 25 years which would put her at 97. Chances are she might only live another 15 years so there would still be plenty of cash left for the kiddies.

Utterly bad advice. Unrealistic. Insensitive. – Garth

#50 Sold Out on 01.14.20 at 7:23 pm

I think we can safely rule out a RE crash in the near future, certainly not in YVR/GTA. Immigration, TFWs, and foreign students will ensure that demand is never satisfied, keeping prices aloft until an external event knocks them back, though only temporarily.

So the fed government, who dictates immigration levels, has set their sights on RE tax revenue. I think the Liberals will not sleep until they figure out a way to extract a portion of the previously untouched gains.

A RE cap gains tax is all but a done deal. Inevitably people will get smarter, figure out ways of dodging new RE taxes, causing revenue to fall. Well, easy peasy, admit more immigrants.

Students and temporary foreign workers have zero impact on a market like the GTA with 80,000 deals a year. The economy, interest rates and credit regs have far more impact. You immigration conspiracists are misled. – Garth

#51 Nonplused on 01.14.20 at 7:29 pm

#41 ww1

“Fifteen to twenty years in a seniors residence can eat through $1,000,000 pretty easily.”

Fifteen to twenty years in a seniors residence? You can be out of prison in 25 years for murder.

Seniors residence is expensive no doubt but not very many people move in to full time care 20 years before they purchase their final piece of property. Could it happen? I am sure it does. But it is outside the planning scenarios. A more likely worst case is 5 years at $4,000/month or $240,000, usually covered by the equity in the house if there was such. Or the pension if there was one. Or the RRSP’s. Our hopefully TFSA’s.
Lacking these options it’s back to living in the chicken coop.

My father was eight years with Alzheimer’s, in care costing $8,000 a month. This may be more of what the future looks like for many. – Garth

#52 Sold Out on 01.14.20 at 7:38 pm

#41 ww1 on 01.14.20 at 6:46 pm
#28 Camille on 01.14.20 at 5:25 pm
God help seniors. So many have to go to, and then leave retirement homes because they have no money. Or downgrade.

Some annual “ball park” costs for senior care – Canadian dollars circa 2019.

1) $20K. Government subsidized old age care with four to a room. They take all of your CPP/OAS/GIS money to pay for it. Long waiting lists. Nasty.
2) $25K. Government subsidized old age care with two to a room. Like option 1 but you need more than CPP/OAS/GIS to pay for it. Less nasty but not by much.
3) $30K. Government subsidized old age care in a private room. Like option 1 & 2 but you need more than CPP/OAS/GIS to pay for it.
4) $40K – $50K. Private senior’s residence with “independent living”. One room & a private bathroom in a nice residence with 3 meals a day and planned activities every day.
5) $50K – $70K. Private senior’s residence “assisted living” – like option 4 but more hands on care for feeding, cleanliness, and getting around.
6) $70K – $90K. Private senior’s residence “memory care”. Hands on care through the final years of dementia.

Fifteen to twenty years in a seniors residence can eat through $1,000,000 pretty easily.

xxxxxxxxxxxxxxxxxxxxxxxx

Fortunately the average length of stay is 18 months. Whether that is due to people only entering care very close to their natural date of expiry, or to the quality of care provided, is debatable.

https://www.theglobeandmail.com/globe-investor/retirement/long-term-care-costs/article26913111/

#53 Ronaldo on 01.14.20 at 7:43 pm

#39 Samuel on 01.14.20 at 6:35 pm
I suppose selling the million $ house and buying a condo for $500k and then investing the other $500 and pulling out $2500 a month without touching the principle is a dumb idea.
——————————————————————
Probably. As it stands she can earn $7400 from her OAS and $11,000 from GIS + $600 HST credits for a total of $19000 plus she can work and earn $5000 without clawback to her GIS for a total of $24000 (tax free).

If she was to invest the half million to earn $2500 per month she would lose her entire GIS of $11,000 to clawback plus the HST credits and her income from OAS and Investents would be taxable (approx. $6800) leaving her with net income of around $30,000. So she comes ahead $500 a month. Not a good return on a half million. Figure it out.

#54 Sold Out on 01.14.20 at 7:44 pm

Students and temporary foreign workers have zero impact on a market like the GTA with 80,000 deals a year. The economy, interest rates and credit regs have far more impact. You immigration conspiracists are misled. – Garth

xxxxxxxxxx

I see you omitted a legitimate link supporting my statement. You’re also incorrect in stating immigration has no effect on RE in bubble cities. Immigrants are pure housing demand, as are 1st time buyers, because they only buy RE, with no accompanying sale.

The link was out of date and purely speculative. This blog will not support any poster who blames the actions of people living in Canada on immigration. Go away. – Garth

#55 Reality is stark on 01.14.20 at 7:46 pm

Some people will do anything to get money out of their house before the government finds a way to abscond with it.
It is more responsible to allow the socialists to steal the equity for the benefit of the masses than for you to selfishly enjoy the fruits of your labour.
It is more fair that any mortgage taken out against a principal residence triggers a capital gain. The tax is taken as the mortgage money is distributed by the lending institution (regulated by the government of course).
Tax the prudent to allow the reckless to continue to make poor choices.
Fair societies like Canada reward the impulsive.

#56 Yanniel on 01.14.20 at 7:49 pm

“ So when they sell or, more likely, die, their estate is responsible for it. Surprise, kids!”

Would this be a problem for the offspring if they want nothing to do this the inheritance?

What happens if the person borrows big at 55 years old and get to live to 120 somehow? Who gets the short end of the stick? The lender?

#57 Boomer Logic on 01.14.20 at 7:52 pm

Although I agree with Garth that a HELOC is a better deal than a reverse mortgage from the point of view of the interest charged, the reverse mortgage makes a good deal of sense in certain cases.

First of all, you don’t have to have an income. HELOC’s, like mortgages, have more difficult standards than a reverse mortgage. To get a reverse mortgage all you need is equity and a pulse. And it doesn’t even have to be a very strong pulse.

In the days of yore, when grandma was in failing financial health her kids would kick in to keep her in the money, knowing there would be an interest in the house coming their way when she passed on. But these days her kids don’t have any money and also don’t trust each other farther than they can throw them. So in steps the corporations to make a tidy profit on all the discord and the fact that nobody has any money at the end of the month.

So yes, the interest rates on reverse mortgages are punitive. But what else is mom going to do if that is her only asset? Collect bottles so you can have a bigger inheritance? Are you over there giving her money and cooking her supper? No you are not. So let her have her reverse mortgage. Or better yet, buy her house from her and then let her live in it as long as she likes. Wait, what’s this? You can’t afford to do that? Well then shut up.

(Buying her house is of course a terrible idea because there would have to be rent, the siblings will all suspect maleficence, there is a problem if the money runs out before she makes her way to the free lodging in the sky, and everyone will end up hating each-other. Think of a reverse mortgage as a way to save Christmas for years to come. Sometimes your money is better off somewhere else. Like in shares of companies that sell reverse mortgages for example.)

So ya, Garth’s advice is spot on again. It ain’t your pig and it ain’t your farm.

#58 Rico on 01.14.20 at 7:56 pm

So how about we get a bunch of us together, pool some money and start issuing reverse mortgages?
Seems like a sweet deal, plus if the market turns down we get to evict some wrinklies…

#59 Ponzius Pilatus on 01.14.20 at 7:59 pm

#151 Sail away on 01.14.20 at 12:07 pm
#138 DFO on 01.14.20 at 10:03 am

Buffett is currently SITTING on 120 billion in cash. Weird how he isn’t using all that money to create new jobs or opportunities or researching new tech or bio…

———————————

So… you’re spouting on a finance blog about social justice in publicly-traded businesses without seeming to understand business or publicly-traded companies.

You know that saying: “It is better to remain silent and be thought a fool than to open your mouth (keyboard in this case) and remove all doubt”
———
My vote goes to DFO.

#60 Asterix1 on 01.14.20 at 8:25 pm

#35 Bob on 01.14.20 at 6:19 pm
What happens when the amount owing on the mortgage exceeds the value of the house?
—————
They send an exterminator, and it’s not for the cockroaches…..

#61 SoggyShorts on 01.14.20 at 8:28 pm

#30 Shawn Allen on 01.14.20 at 5:38 pm

The mortgage rate is 5.6% here. Is that usurious? Really?
****************
Think of it this way:
If she sold her house for 1m and bought the identical place next door for 1m, what interest rate would she pay?

5.6% isn’t that much… unless the offer of 2.8% is right there

#62 Arctic Gringo: Qalunaaq on 01.14.20 at 8:52 pm

Poloz out in June and now Siddell out in December. Whatz a country to do…???

#63 GBiddy on 01.14.20 at 8:54 pm

#26 Sail away on 01.14.20 at 5:17 pm

#11 GBiddy on 01.14.20 at 4:29 pm

Finances and aging parents

————————————-

GBiddy, some other considerations as your father ages:

Wise words, Sail. I can tell you’ve been/are there, done that.

Just last week, [email protected](blue)B scoffed at the PoA we presented her with, said they’d never accept it unless done by a lawyer. I pointed out that in this mysterious prov at least, only PoA’s involving real estate need a notary or lawyer. If just financial, only two witnesses are needed.

“We’d never accept that,” she said.
“Check the gov’t website. It’s a free form. The legislation spells it out,” says I.
“Sorry, no.”

I turned to me old man: “See dad, this is why you moved your money to [the orange place].”

The fun begins/continues.

#64 ImGonnaBeSick on 01.14.20 at 9:01 pm

#19 MF on 01.14.20 at 4:55 pm

The formula seems simple, but also involves some luck. No lavish vacations or expensive cars (both are worthless), a healthy lifestyle (don’t drink don’t smoke eat healthy and exercise), and a plan

————————–

I don’t trust anyone that doesn’t drink… Or smoke… … Or has a plan.

#65 Samuel on 01.14.20 at 9:03 pm

Ronaldo – Oh you’re 72 years old? My financial advice is to get a part time job and make $5k a year. And I would never calculate the extra expenses of owning a million $ house vs a newer condo. Just try not to live too long…

#66 45north on 01.14.20 at 9:27 pm

“I’ve pleaded with her to sell it,” says M, “and even suggested she read your pathetic blog, but nothing works. This week mom told me she’s got a reverse mortgage for some ridiculous amount – like $500,000 – and I should mind my own business.”

tragic. There’s an undercurrent of emotion and judgement: “pleaded”, “mind my own business”.

“pleaded” implies contact. I’m guessing regular contact. Which is nothing to dismiss lightly. “mind my own business” is dismissive and hurtful. The mother doesn’t know who she is. That’s tragic.

so working back, the mother’s house is worth $1 million. Suppose, she sells and nets $900,000. Is that too much? Suppose she sells, I get $54,000 a year without touching the principle. Plus CPP and OAS.

Garth, this blog is providing a great service. Gratuit.

#67 Leo Trollstoy on 01.14.20 at 9:27 pm

Buffett is currently SITTING on 120 billion in cash. Weird how he isn’t using all that money to create new jobs or opportunities or researching new tech or bio…

Ignorant comment

Berkshire matches its cash and fixed income portfolio size to its insurance float

https://pbs.twimg.com/media/EJrbldAVAAAuk_a?format=jpg&name=small

Dummy

#68 45north on 01.14.20 at 9:29 pm

AGuyInVancouver: PS. Heating oil? With Canada’s vast natural gas resources why does anybody use heating oil anymore? Maybe the Feds should fund natural gas infrastructure to meet climate goals!

Mr. Dress-up is not going to do that. Burning natural gas still is burning fossil fuels. It burns cleaner and better than fuel oil but it’s still burning. Production of CO2 is off-setting the reduction in solar radiation. Even if the increased concentration of CO2 in the atmosphere perfectly balances the reduction in solar radiation, climate change is still happening. The upper latitudes warm which is what we see and there is no wide spread glaciation which is what we don’t see.

#69 ww1 on 01.14.20 at 9:40 pm

#52 Sold Out on 01.14.20 at 7:38 pm
Fortunately the average length of stay is 18 months. Whether that is due to people only entering care very close to their natural date of expiry, or to the quality of care provided, is debatable.

Maybe the average stay in a “long term care” facility is 18 months per the link you posted. But those “long term care” facilities are listed in the first three options I posted about earlier. The one’s labelled “nasty”. By the time you get there, it’s almost over and somebody changes your diapers and cuts your food up and feeds you.

Many more people enjoy lives in private senior’s residence for a lot longer than 18 months before needing to be warehoused in a “long term care” facility. Rightfully spending all the money they earned over a lifetime (i.e. their kid’s inheritance) for just such an eventuality .

The really sad situation is watching their children having to explain to their elderly parent that when the money runs out, they will be moving from the nice senior’s residence with all their friends to a “long term care” facility.

#70 Captain Oblivious on 01.14.20 at 9:59 pm

With more wrinklies taking advantage(???) of reverse mortgages, when is the real estate cartel going to lobby the government to restrict reverse mortgages so they can get more listings.

#71 just snootin' on 01.14.20 at 10:03 pm

I once blocked my mom’s email for nagging. I told her she wasn’t allowed by internet law. After a year she was reinstated.

#72 miserable boomer on 01.14.20 at 10:05 pm

The 25% of DB pensions are civil servants. Not only are they guaranteed to surf the light fantastic while others shiver in dark hovels but they’re indexed and get raises while taxes go up on everyone else to cover our idiotic largesse.

The reason Keynes was laughed out of the room when he presented his work was that everyone realized that at 2% increases in government revenue p/a that taxpayers would be paying 100% in 50. Que the loud guffaw. And yet, here we are. Think the Trudeau Carbon Tax is about climate? Think again, it’s about paying off the bureaucracy loyalists ad perpetuum. Meanwhile millions of young grads are unemployed because the union encourages double dipping. The Mills are so screwed.

As it’s been mentioned before, the RM is a contract with some very nasty surprises written into the fine print. The maintainer clauses allow for instant foreclosure if certain particulars aren’t adhered to, yard work and regular roof replacements will suck up huge amounts of the original settlement. Do you think those vultures will sit idle waiting for grannies last chirp?

#73 boom_or_bust on 01.14.20 at 10:06 pm

“only 25.3% of all working Canadians have a defined benefit pension”

I’m going to take a wild ass guess as to where these people are employed.

– Federal gov.
– Provincial gov.
– Municipal gov.

#74 Sail Away on 01.14.20 at 10:09 pm

#59 Ponzius Pilatus on 01.14.20 at 7:59 pm
#162 Sail away on 01.14.20 at 1:27 pm
DFO

Buffett is currently SITTING on 120 billion in cash. Weird how he isn’t using all that money to create new jobs or opportunities or researching new tech or bio…

———————————–

My vote and funds will remain with Berkshire.

———————————–

My vote goes to DFO.

———————————–

Fair. I’ll stick with Berkshire, you invest with DFO. Talk again in 5 years.

Your firing from the credit union might be starting to make sense… Were you an investment advisor by any chance?

#75 Trends my Friends on 01.14.20 at 10:26 pm

The link was out of date and purely speculative. This blog will not support any poster who blames the actions of people living in Canada on immigration. Go away. – Garth

________________________________________________________________

“Blaming” sigh… Gartho back at it again.

That is not the same as being a significant contributing factor, or a result of. These good people need a place to live, own or rent, fact. The original poster’s assertion that a previous residence not being sold or vacated in these instances adding even more demand, is also empirically correct. This is clearly and sharply driving up demand in areas that are becoming more and more overcrowded with the population of the GTA nearly doubling in the past 25 years alone…as in several million more people with no end in sight. Most people can read and understand this simple demographic without blaming new Canadians.

It’s not the only reason but a significant contributor to the end result and not an attack on these people. As a matter of fact, I feel sorry for the amount of back breaking debt that they have to take on to be anywhere close to the jobs and family that they require to survive, while they freeze their buns off in the land of the rising taxes.

#76 IHCTD9 on 01.14.20 at 10:35 pm

#22 MF on 01.14.20 at 5:03 pm
#14 FreeBird on 01.14.20 at 4:40 pm

Gen x doesn’t live quietly at all. They brag incessantly about their house purchases (that only went up with the lowering of interest rates) like they are all RE geniuses.
———

They do?

Our local Backwater Braggadocio comes in 4 popular flavours no matter the generation:

New Trucks
New ATV’s
New Boats
New Guns

Real Estate is just where you store said items.

#77 Treasure Island CEO - 92,384,453.88 Offshore on 01.14.20 at 10:45 pm

Logic tells you that the housing market will tank…without the BOC and Canadian gov that is.

The BOC and Canadian gov is that money tree people joke about.

#78 WUL on 01.14.20 at 10:54 pm

Garth,

You write beautifully and powerfully.

Ahh, the high and enduring value of a liberal arts university education.

Thank you,

WUL

#79 IHCTD9 on 01.14.20 at 10:58 pm

I don’t know about the rest of you dogs, but we’re keeping space for parents/in-laws in our own home. If it makes sense some time in the future for one or more to move in with us, that’ll be an option on the table for them. They made big sacrifices for us kids, everything else came second, none of them are living off a big pension or portfolio.

Likely it’ll be when one goes leaving an elderly single alone in their big empty house, and it’ll last until such time that caring for them exceeds our own + hired in medical help. I’ve got one, possibly two siblings that would also pitch in cost/time/space wise as well.

Every one of my grandparents died in either their own home, or one of their kids’ homes with their children supporting them either way.

#80 Nonplused on 01.14.20 at 10:58 pm

“My father was eight years with Alzheimer’s, in care costing $8,000 a month. This may be more of what the future looks like for many. – Garth”

Yes that can happen, and I am sorry to hear that. And then I suppose if both parents end up in care the numbers go unmanageable pretty quickly.

#81 WUL on 01.14.20 at 11:16 pm

And a Reverse Mortgage is just a slow, drawn out, dripping and inexorable foreclosure. The bankers in black hats get title to the homestead and the owner is standing on the front lawn with suitcases and possessions.

But, that’s the bargain.

Black and white photos taken by Dorothea Lange, hired by Pres. Roosevelt to document the Dirty Thirties, are some of my faves pics.

She did not have an Instagram or Snapchat app.

https://www.bing.com/images/search?q=photographer+dorothea+lange+depression&qpvt=photographer+dorothea+lange+depression&form=IGRE&first=1&cw=1117&ch=337

WUL

#82 cramar on 01.14.20 at 11:22 pm

I feel sorry for Ruth. She has made a grave mistake.

Selling the house would net her at least a cool million. Invested at even 5% per year, would give her an income of $50,000. She would give up a small percentage of this to taxes. But the rest she could easily pay for her apartment rent and lots of cat food, as well as human food. No more economic worries. The principle stays intact for either the kids or, if she needs it, a nursing home in future.

Age should produce wisdom, but not in Ruth’s case.

#83 YouKnowWho on 01.14.20 at 11:22 pm

Well, for sure that Pickering Nuclear Accident Alert is going to be felt in Pickering with RE values of homes, probably people taking a decision to leave from the area

Now main stream media are reporting the Iodide Pills are available to all within 50km, and maps shown on the news showing how Mississauga is within 50km of the Pickering Nuclear Power Plant.

Oh yeah….it’s serious false alarm advertising the seriousness of what could go down there. For sure this will hurt RE values in Pickering, Ajax, Oshawa region. I mean…that’s an old plant, and the older they get, the more expensive they get. Then there is the fact that you can’t move this thing, and the materials have half life of 100s and 1000s of years.

#84 SoggyShorts on 01.14.20 at 11:43 pm

#30 Shawn Allen on 01.14.20 at 5:38 pm

Here’s a good one:
The difference between earning 5.6% and paying 5.6%

Scenario 1
1,000,000 portfolio
5.6% returns
$56,000 yearly spending
———
money runs out: never

Scenario 2
500K loan and 1m house
25K yearly spending
5.6% interest on loan
——-
Money runs out in 20 years and loan has tripled to 1.5m

#85 Ca$h money on 01.15.20 at 12:07 am

One thing Garth didn’t bring up this time around is the requirements to maintain the property for the remainder of your life. If the roof needs repairs and you don’t take care of them the lender can take possession and boot you out.

I could see this becoming quite predatory as the requirements are grey. All the bank has to do is claim you are not meeting the maintenance requirements and you are evicted.

This will start happening and be more common in the next few years.

#86 Westcdn on 01.15.20 at 12:50 am

Shawn Allen on 01.11.20 at 1:34 pm

The fees I saved were $50 (soon to be $75) per withdrawal from my RRSP vs zero from my RIF. I make 5-6 withdrawals per year. My marginal tax rate (Federal and Provincial) on those withdrawals are about 30% but my average tax rate is about 20%. My average income rate was also about 20% while working. I actually have more money to spend in retirement due payroll deductions and savings.

So to break even with the taxman I had to start drawing down my RRSP immediately. You are correct there a mandatory minimal annual withdrawal which I exceed every year by a factor of 3 even then looks like I will be 80 by the time I get it to zero and I still have a LIRA to chew through. From what can gather, you don’t much money after 80 if you are debt free. I may step up my withdrawals but I will have to wait to see what the future brings me.

Income tax is by far my largest single expense. I take out more than I need to keep my TFSA account topped up and the extra goes to my non registered account. It is a modest lifestyle yet gives me the time to do what I want – like option trading. Nice thing about options is your losses are minimized. The trick is to find mispricing. DIY investing is a full time job for me. I swear if I win a big lottery, I am buyung some subscription services. Maybe even set up a small office in a local mall to shoot the breeze with whomever and perhaps pick up some service fees.

I visited Chicago last week and was surprised by their food prices and mogas price of about $1.20 Cdn per litre. The food prices were higher by about a 1/3 in $Cdn. I met a Cdn traveller returning from Phoenix, AZ and he claimed food and mogas were far cheaper than in Calgary. The only difference I can see at the moment between Illinois and Arizona are public servant pension(s) funding issues as result of poor political leadership. But, hey, they didn’t vote themselves in. Chicago is a bustling metropolis nonetheless. O’Hare was impressive.

#87 under the radar on 01.15.20 at 5:05 am

5.6% an extreme rate of interest? – Even with set up costs and fees the real cost is likely about 7.5 -8% . Still not extreme. Nobody forces anybody to borrow.

#88 crowdedelevatorfartz on 01.15.20 at 7:48 am

Snow-maggeddon in the Lower Brainland this morning.
5-10 cms last night, still snowing HARRRRRD this am and another 5-10 cms expected today…. :)
My morning commute should be amusing.

The last 4 days of icy driving conditions still haven’t sunk in to the tail gaters, speeders, and all around idiots that drive in Vancouver with worn out tires.
And we wonder why our govt car insurance rates are the highest in Canada….

ICBC rates goin uppa uppa uppa!
Invest in BC car body repair shops…a perpetual money machine.

#89 crowdedelevatorfartz on 01.15.20 at 7:53 am

@#83 YouKnowHoo
“For sure this will hurt RE values in Pickering, Ajax, Oshawa region.”
++++

Never under estimate the general populations ability to forget anything that happened 10 minutes ago.
Toss in a Geiger Counter with the granite counter tops…
Your real estate sale will be a foregone conclusion.
To

#90 crowdedelevatorfartz on 01.15.20 at 8:01 am

@#86 WestCdn
“The only difference I can see at the moment between Illinois and Arizona are public servant pension(s) funding issues as result of poor political leadership. ”

+++++

Interesting comments.
I think our public servant pension shortfalls will eventually become a political issue either through the taxpayers squealing “Enough!”
Or
The public servant pensioners squealing “Too much!” after their pensions/ benefits/etc. are cut.

Either way , politicians will need to grow a spine.

#91 crowdedelevatorfartz on 01.15.20 at 8:12 am

@#87 Under the radar
“Nobody forces anybody to borrow….”
+++++

Perhaps reading and comprehension were skipped during your educational dalliances?

The elderly mother has no money to live on.
She has no choice. She needs money. She is not financially astute.
Sell or borrow.
And since moving is one of the most stressful things an elderly person can go through besides a serious illness or the death of a spouse……
I would say for her.
Unfortunately,moving isnt even being considered.
So, she has signed away ownership of her house to rapacious money lenders ( Shakespearian Shylocks as it were).
The money lenders fleece another financially ignorant person.
Sad.
But legal.

Hows that comment WUL?
All without a Bachelor of Arts……or any Uni degree for that matter.

Time for me to brave the BC drivers in the snowy hills of the Lower Brainland.
Pray for me.

#92 Dharma Bum on 01.15.20 at 8:32 am

#4 princeradar

We should be like the Swedish, their tradition is to slowly declutter your life as you get older so your kids don’t have to deal with a bunch of crap.
——————————————————————–

Those Swedes might be shy, cold, indifferent, minimalistic, social justice loving, cheap, uninteresting conflict avoiders, but they sure got it right when it comes to downsizing later in life.

I am Shven, dis ees Ollie.

https://www.youtube.com/watch?v=gDvJzeXqJus

#93 Dharma Bum on 01.15.20 at 8:51 am

#33 RE_Investor

RE Investors are looking for great RE with Lease back features. Much better to rent the property to the original owner than to go through the problems of getting renters.
——————————————————————–

That’s a great idea.

Back when I was an amateur landlord, I stumbled onto a situation in which the guy that was selling a SFH that I was considering purchasing to rent out, told me that he was going to just rent a place after selling.

I asked him if he was willing to just stay put and rent the place from me. He was elated! He couldn’t believe his ears.

Deal was done, and his family never left the house.

Best tenant I ever had.

#94 IHCTD9 on 01.15.20 at 8:58 am

#56 Yanniel on 01.14.20 at 7:49 pm

What happens if the person borrows big at 55 years old and get to live to 120 somehow? Who gets the short end of the stick? The lender?
______

“In 1965, aged 90 and with no heirs left, Calment signed a life estate contract on her apartment with notary public André-François Raffray, selling the property in exchange for a right of occupancy and a monthly revenue of 2,500 francs (€380) until her death. Raffray died in 1995, by which time Calment had received more than double the apartment’s value from him, and his family had to continue making payments. Calment commented on the situation by saying, “in life, one sometimes makes bad deals.”[9] In 1985, she moved into a nursing home, having lived on her own until age 110.[1] A documentary film about her life, entitled Beyond 120 Years with Jeanne Calment, was released in 1995.[10]”

https://en.wikipedia.org/wiki/Jeanne_Calment

#95 Dharma Bum on 01.15.20 at 9:00 am

#41 ww1

Fifteen to twenty years in a seniors residence can eat through $1,000,000 pretty easily.
——————————————————————–

That’s the truth.

My mom is in a memory care facility (24/7 supervision with lockdown) and we cough up $90,000.00 a year.

That’s now. The fees creep up annually.

She’s 97, going on 107.

Fortunately, we were able to sell her house and invest the proceeds to fund this.

What a drag it is getting old!

https://www.youtube.com/watch?v=QAszapI0unE

#96 Elderly on 01.15.20 at 9:03 am

and with a million invested she should enjoy an income of five grand a month and still preserve the capital.

Can you explain, how this is done Garth, and at what risk. Just wondering.
thanks.

A middle-of-the-road, professionally and prudently-managed portfolio should easily produce that level of income with the investor received a stable, unwavering monthly ‘paycheque,’ while the principal is preserved. – Garth

#97 JB on 01.15.20 at 9:07 am

#92 Dharma Bum on 01.15.20 at 8:32 am

#4 princeradar

We should be like the Swedish, their tradition is to slowly declutter your life as you get older so your kids don’t have to deal with a bunch of crap.
——————————————————————–

Those Swedes might be shy, cold, indifferent, minimalistic, social justice loving, cheap, uninteresting conflict avoiders, but they sure got it right when it comes to downsizing later in life.

I am Shven, dis ees Ollie.

https://www.youtube.com/watch?v=gDvJzeXqJus
………………………………………………
I worked with an old Swed, what a miserable person he was and his wife was not the life of the party at Christmas get togethers. He complained that he was living in a small condo, no grass, not backyard hated his neighbors. I think it was his wife he hated most!

#98 JB on 01.15.20 at 9:10 am

#3 mitzerboyakaQueencitykidd on 01.14.20 at 4:12 pm

u ok smokey
…………………………..
Don’t worry he is at The Betty Ford Clinic.

#99 JB on 01.15.20 at 9:13 am

#62 Arctic Gringo: Qalunaaq on 01.14.20 at 8:52 pm

Poloz out in June and now Siddell out in December. Whatz a country to do…???
……………………….
I hear Mark Carney is open after March 15th? Give him a call.

#100 IHCTD9 on 01.15.20 at 9:31 am

#4 princeradar on 01.14.20 at 4:13 pm
Yup pretty sad, also because we are so attached to our stuff. We should be like the Swedish, their tradition is to slowly declutter your life as you get older so your kids don’t have to deal with a bunch of crap. If you have no stuff, no need for a big drafty old house.
____

Several years back, a BIL’s Father unexpectedly passed away – I helped him and his bro clean up the property and house.

IIRC, we hauled off 35,500 lbs of scrap metal, and roughly 15,000 lbs of garbage/junk to the dump out of the back yard. We had ads on Kijiji selling all the good stuff and thousands of dollars were realized. It took 3 years off and on to return the place to a normal abode.

After seeing all that, I started getting rid of my stash of “not going to get to it/use it” collectibles. My goal is to get down to only one ATV (OK, maybe 2), one crawler, one trailer and one tractor – all of them being something of decent value as opposed to junk. All the old car/drag racing stuff is gone (that took years), and as of last summer you can now – for the first time in 18 years – walk from one end of my shop to the other in a straight line.

I like my Maternal Grandfathers’ plan – live to 99 and die basically penniless in your kids’ house. He started liquidating and distributing the proceeds starting in his 80’s.

#101 Jim Beem on 01.15.20 at 9:33 am

#96 Elderly.

$5000 grand a month from a 60/40 portfolio where bonds pay nothing and 5% is on the risky side of dividend payers? My calculator must be broken.

In a balanced portfolio containing bonds (government, corporate, provincial) and preferred shares the fixed-income portion yields 3.5%. Not much equity exposure is required to achieve 5% overall. BTW, a balanced portfolio has averaged 7.2% over the last nine years. A 65-year-old has decades to live. GICs and savings accounts spell needless hardship for many. – Garth

#102 Ponzius Pilatus on 01.15.20 at 9:44 am

#79 IHCTD9 on 01.14.20 at 10:58 pm
I don’t know about the rest of you dogs, but we’re keeping space for parents/in-laws in our own home. If it makes sense some time in the future for one or more to move in with us, that’ll be an option on the table for them. They made big sacrifices for us kids, everything else came second, none of them are living off a big pension or portfolio.

Likely it’ll be when one goes leaving an elderly single alone in their big empty house, and it’ll last until such time that caring for them exceeds our own + hired in medical help. I’ve got one, possibly two siblings that would also pitch in cost/time/space wise as well.

Every one of my grandparents died in either their own home, or one of their kids’ homes with their children supporting them either way.
——————-
Is your last name Walton?

#103 IHCTD9 on 01.15.20 at 9:50 am

#88 crowdedelevatorfartz on 01.15.20 at 7:48 am
Snow-maggeddon in the Lower Brainland this morning.
5-10 cms last night, still snowing HARRRRRD this am and another 5-10 cms expected today…. :)
My morning commute should be amusing.
___

Heh, it should be snowy and 10-20 below here right now, but it’s been hanging around zero with a day or two north of that interspersed. We have like ~1″ of snow on the ground max. Got a pile of rain last weekend and my sump pump is still running…

The Griz is just sitting there with the plow on – doing nothing.

#104 NoName on 01.15.20 at 10:01 am

#81 WUL on 01.14.20 at 11:16 pm
And a Reverse Mortgage is just a slow, drawn out, dripping and inexorable foreclosure. The bankers in black hats get title to the homestead and the owner is standing on the front lawn with suitcases and possessions.

But, that’s the bargain.

Black and white photos taken by Dorothea Lange, hired by Pres. Roosevelt to document the Dirty Thirties, are some of my faves pics.

She did not have an Instagram or Snapchat app.

https://www.bing.com/images/search?q=photographer+dorothea+lange+depression&qpvt=photographer+dorothea+lange+depression&form=IGRE&first=1&cw=1117&ch=337

WUL

I’m sure that times were tough back then for that woman and her kids but it worked out for them, after picture was published.

That D Lange photog took some great photos during that time, here is an web with few more photos she took around same time.

https://www.kuriositas.com/2011/11/depression-era-photography-of-dorothea.html?m=1

#105 Randy on 01.15.20 at 10:01 am

Ontario Government is negotiating with Ontario Teachers Unions……Warning your property taxes are going up. Anybody know why my Property Taxes include costs for services that I never use ? Is this because they don’t teach history or math in schools any more ?

#106 Indiegirl on 01.15.20 at 10:07 am

One point you failed to mention Garth regarding the payment of the reverse mortgage when you sell: if you’re selling because mom or pop need to move into a care facility, they are not going to have enough money to pay for it. Hence, this kind of decision does impact the kids and has nothing to do with an inheritance.

Also, I’m pretty sure that some of these reverse mortgages include terms that the home owner needs to be living in the home.

#107 Ponzius Pilatus on 01.15.20 at 10:09 am

#103 IHCTD9 on 01.15.20 at 9:50 am
#88 crowdedelevatorfartz on 01.15.20 at 7:48 am
Snow-maggeddon in the Lower Brainland this morning.
5-10 cms last night, still snowing HARRRRRD this am and another 5-10 cms expected today…. :)
My morning commute should be amusing.
___

Heh, it should be snowy and 10-20 below here right now, but it’s been hanging around zero with a day or two north of that interspersed. We have like ~1″ of snow on the ground max. Got a pile of rain last weekend and my sump pump is still running…

The Griz is just sitting there with the plow on – doing nothing.
—————
Talking about the gig economy.
Lots of F-150s with snowpacing attached racing up and down the streets.
Being in the way more than helping.

#108 IHCTD9 on 01.15.20 at 10:09 am

#102 Ponzius Pilatus on 01.15.20 at 9:44 am

Is your last name Walton?
___

I must not be old enough to get that joke.

#109 BillyBob on 01.15.20 at 10:17 am

#97 JB on 01.15.20 at 9:07 am
#92 Dharma Bum on 01.15.20 at 8:32 am

#4 princeradar

We should be like the Swedish, their tradition is to slowly declutter your life as you get older so your kids don’t have to deal with a bunch of crap.
——————————————————————–

Those Swedes might be shy, cold, indifferent, minimalistic, social justice loving, cheap, uninteresting conflict avoiders, but they sure got it right when it comes to downsizing later in life.

==================================================

Hmm.

Might wanna check your stereotypes. You DO know the Swedish descend from conquering marauders called Vikings, right?

Wildest life-of-the-party types I ever worked with overseas were Swedes. Maybe the crazy ones just leave Sweden, I dunno. Scandinavian life in general does seem pretty dull. Much like Canada.

#110 Bezengy on 01.15.20 at 10:17 am

Living with your kids can be great, at least part time. I find it works best if you do more than your share of cleaning, walk their dog, whip out the Visa card without hesitation, and learn to keep your mouth shut when it comes to the kids. It’s a win win.

#111 SimplyPut7 on 01.15.20 at 10:26 am

Mind her own business, of course. Like mom says. It’s her asset to squander.

—————————–

While it is her mother’s money, if her mom lives to be very old, it may not be enough to live on. She should have sold the house (while it’s still tax-free to do so), invest the funds in lower volatility, lower risk financial assets and rent a condo or small house so she does not have to worry about maintaining the house or paying the property taxes so that the reverse mortgage corporation doesn’t look for ways to take the house before she dies.

https://twitter.com/ExtraGuac4Me/status/987042124167303169

I know older adults don’t like to talk about worst-case scenarios but if her mother was not able to care for herself anymore, the daughter may not have enough money from the house to use to care for her mother properly as she gets further on in age and requires more assistance to be independent or to live in a nursing home.

Even if she’s well and lives an independent life as many older adults do, she could outlive the $500,000. My great-aunt died when she was 98, a co-worker of mine has a great-aunt (no dementia, mind still sharp) who is turning 105 this year. Trying to make $500,000 last for another 30 years while factoring in the cost of living increases (housing, food, transportation etc) is very difficult for novice investors.

#112 crowdedelevatorfartz on 01.15.20 at 10:56 am

@#108 IHCTD9
“i must not be old enough to get that joke”
+++++
The Waltons. tv show in the 1970’s.
Three generations of family in a bucolic country setting. Cheesy but mildly charming.

My commute was amusing.
5 inches of fluffy white stuff. Zero evidence of plows ( apparently thats what happens when the govts. out here have more administrators than drivers. Perhaps we could give all the office staff keys to spare plows and let them clean one street…problem solved)

On my commute I passed many cars stuck in the middle of the road, tires spinning fruitlessly.
The best “show” was Royal Oak.
A steep hill about 7 blocks long.
I turned the corner to proceed up the hill and stopped….the snowplow was driving down ….on the wrong side of the road…..
Appears that half way up the hill various cars of every description were sideways, backwards, or just stopped…..completely blocking the hill climb road.
I pulled a Uturn and followed Mr Plow back down and went up another steep hill (Willingdon) to Kingsway….a major commuter route.
No evidence of plows. Cars spinning everywhere.
10 cms of more snow and 90 km winds today……
ICBC car insurance rates going uppa uppa uppa.

#113 Renter's Revenge! on 01.15.20 at 11:02 am

Why get a reverse mortgage from the bank when you can get one from your kids instead?

#114 the Jaguar on 01.15.20 at 11:12 am

@ #109 BillyBob on 01.15.20 at 10:17 am
Might wanna check your stereotypes. You DO know the Swedish descend from conquering marauders called Vikings, right?

Sure that wasn’t the Norwegians? They are definetly in a class of their own.

#115 IHCTD9 on 01.15.20 at 11:27 am

#107 Ponzius Pilatus on 01.15.20 at 10:09 am

—————
Talking about the gig economy.
Lots of F-150s with snowpacing attached racing up and down the streets.
Being in the way more than helping.
___

That’s not the gig economy – that’s the underground economy!

#116 Yukon Elvis on 01.15.20 at 11:35 am

#75 Trends my Friends on 01.14.20 at 10:26 pm
The link was out of date and purely speculative. This blog will not support any poster who blames the actions of people living in Canada on immigration. Go away. – Garth

________________________________________________________________

“Blaming” sigh… Gartho back at it again.

That is not the same as being a significant contributing factor, or a result of. These good people need a place to live, own or rent, fact. The original poster’s assertion that a previous residence not being sold or vacated in these instances adding even more demand, is also empirically correct. This is clearly and sharply driving up demand in areas that are becoming more and more overcrowded with the population of the GTA nearly doubling in the past 25 years alone…as in several million more people with no end in sight. Most people can read and understand this simple demographic without blaming new Canadians.

It’s not the only reason but a significant contributor to the end result and not an attack on these people. As a matter of fact, I feel sorry for the amount of back breaking debt that they have to take on to be anywhere close to the jobs and family that they require to survive, while they freeze their buns off in the land of the rising taxes.
…………………………..
Correct.
Canada’s population was estimated at 37,589,262 on July 1, 2019, up 531,497 compared with July 1, 2018. Such an annual increase in the number of people living in the country is the highest ever observed. This growth also corresponds to adding just over one person every minute.
https://www150.statcan.gc.ca/n1/daily-quotidien/190930/dq190930a-eng.htm
Half a million new residents every year need a place to sleep. I don’t see housing demand dropping off any time soon.

#117 boom on 01.15.20 at 11:37 am

CHIP CHIP
perhaps many baby boomers are as selfish as claimed… I ain’t leaving you nuttin!

#118 Gerry in North Toronto on 01.15.20 at 12:56 pm

“Why would someone opt for this when a conventional mortgage is cheaper or a HELOC can be arranged with much lower simple-interest payments and no increase in the debt?”
Garth, your advice is, as usual, crystal clear and spot on ~ except the above statement misses a key issue for seniors without any income stream. You’ve actually mentioned this problem previously ~ it is almost impossible for any senior living primarily on pension income to obtain a HELOC or a conventional mortgage.
In today’s scenario, Ruth would never be able to obtain a HELOC or conventional mortgage.
The advice to sell and invest is the only solution for Ruth.
RBC DS will provide a HELOC based on invested assets. Their “Wealth Accumulator” program offers $1:$1 against your portfolio up to 65% of the house price.
However, if you don’t have a portfolio you will never get a mortgage.
I’m 76 and tried last fall ~ retail banks couldn’t begin to deal with my request.

#119 Rossi 46 on 01.15.20 at 2:25 pm

Any chance you could advise on Annuities? I am approaching mid-60’s and was thinking of dumping approx. $300K into one, but not sure about the tax implications of going this route.

Never buy an annuity in a low-rate environment. Like now. – Garth

#120 45north on 01.15.20 at 2:32 pm

Washed up lawyer: Black and white photos taken by Dorothea Lange, hired by Pres. Roosevelt to document the Dirty Thirties

thanks for that

my parents were in their teens during the depression. I remember the 1950’s.

going up to Burks Falls and Sundridge, there were reminders of times past. This picture reminds me of the time

https://thegreatdepressionphotos.files.wordpress.com/2013/10/lange-8b33749.jpg

Compared to the depression it was a time of opportunity. My parents, my grand parents had such a feeling optimism and hope.

#121 Samantha on 01.15.20 at 3:24 pm

Getting a reverse mortgage is irresponsible and plain stupid. Get one only if you hate your kids.

#122 Doug in London on 01.15.20 at 10:19 pm

Interesting. Obviously anyone with some money sense would sell the place, downsize, then take the money and run. Run to a good portfolio, that is. Obviously you can’t keep one of these reverse mortgages going on forever. So sometime in the future there may be a lot of sellers trying to capture any equity they have left in their homes. Something to keep in mind.

#123 dosouth on 01.16.20 at 9:40 am

But how am I gonna get my free ride if my mom spends it all….