If you bought a home 20 years ago in Toronto or Vancouver, it has probably increased in value tremendously. And if you’re retired, or retiring soon, you may be wondering about when to unlock that value. Kim Parlee speaks with Chris Gandhu, a High Net Worth Planner with TD Wealth, about when turning that value into cash can pose a problem, and offers some options to home owners for this dilemma.
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If you bought a home 20 years ago. And one of the big cities in Canada like Toronto or Vancouver, congratulations. Your home was probably worth a whole lot more than it used to be. But if you're an empty nester, you're probably trying to figure out when might be the right time to downsize.
Chris Gandhu is a high net worth planner with TD Wealth, he joins me now to help us with today's ask MoneyTalk question. Chris the question is, should I keep my high value house even though it's too big for my needs?
Right, Kim, well this is a problem that many Canadians in the major cities are facing. And in fact, the economists tell us that although there might be ups and downs, we expect housing demand to remain strong. Therefore, we expect prices to keep increasing.
So if you do find yourself as an empty nester, what should you be doing? And this is the dilemma that has personal and financial consequences.
Let me ask you-- so one of the things I think people probably struggle with is they're in their house and they keep seeing the prices of their houses go up. They're like, ah, I can't capture that. So maybe help manage that, what people are dealing with.
Yeah, I mean, it's a good problem to have, Kim. But if you look at the extreme example, I mean, the age, old, adage, house rich, cash poor. If your house is a significant, asset but you're having difficulty paying your bills, this is a serious concern. So the problem necessarily is not the house going up, that's a good thing. The problem is, how do we balance the house being asset rich and yet you wanting to live a successful retirement. So I think that really is the issue that we need to deal with.
So a couple options, I know that are generally talked about are things like downsizing or getting a home equity loan. So maybe we could just run through those and get the ups and downs for each one of those. Let's start with downsizing.
Yeah, so if you find yourself as an empty nester I think downsizing is the logical option. But as house prices have increased in all the major cities, I think what is perhaps not surprising here is that so have the prices for those condos or other residential properties that you want to downsize to.
In fact, if you wanted something hands off, those condos also come with a lot of monthly maintenance fees, so maintenance free, but high maintenance fees. So when you do the math, you may find that, hey, I'm downsizing but I'm not saving as much money as I expected to save. That may mean perhaps moving to a suburb far away from the city, but that's a lifestyle choice.
Are you willing to move away from family and the community where you may have lived for a long period of your life? So although downsizing is an option. It's better to be prepared and do your homework ahead of time.
OK. So downsizing could be an option, but again, to your point lots of things to consider. Option behind door number two is getting a loan, a home equity loan, against the house.
Yeah. A home equity line of credit is a great way to leverage the equity inside your house. And now that we are facing the prospect of low interest rates, it might not be a bad time to, in fact, investigate this option. But just understand that this is a loan. So at the minimum, you do have to make the interest payments on it. And at some point, somebody has to repay the capital as well, whether that's you or your estate.
Now, if taking out this loan in fact causes you anxiety, then perhaps this is not the best option for you. If you believe you can manage this loan, then this is a great way to have your cake and eat it too. You're living inside your house, yet you're using the equity inside your house to your benefit.
All right. How do we go about making the right decision? I mean any ideas there.
Yeah, I think, do your pre-work. And some of this pre-work will require you to talk to a financial planner or an advisor. So do lean on that professional for support.
Chris, always a pleasure. Thanks so much.
Thank you, Kim.
Chris Gandhu, high net worth planner with TD wealth. And if you have questions or you would like to ask MoneyTalk a question, you can send it to moneytalk@td.com with Ask MoneyTalk in the subject line. Then you can ask a question. We will find someone to answer it for you, and you will find it on moneytalkgo.com, amongst a whole bunch of other questions we've had answered for you.
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Chris Gandhu is a high net worth planner with TD Wealth, he joins me now to help us with today's ask MoneyTalk question. Chris the question is, should I keep my high value house even though it's too big for my needs?
Right, Kim, well this is a problem that many Canadians in the major cities are facing. And in fact, the economists tell us that although there might be ups and downs, we expect housing demand to remain strong. Therefore, we expect prices to keep increasing.
So if you do find yourself as an empty nester, what should you be doing? And this is the dilemma that has personal and financial consequences.
Let me ask you-- so one of the things I think people probably struggle with is they're in their house and they keep seeing the prices of their houses go up. They're like, ah, I can't capture that. So maybe help manage that, what people are dealing with.
Yeah, I mean, it's a good problem to have, Kim. But if you look at the extreme example, I mean, the age, old, adage, house rich, cash poor. If your house is a significant, asset but you're having difficulty paying your bills, this is a serious concern. So the problem necessarily is not the house going up, that's a good thing. The problem is, how do we balance the house being asset rich and yet you wanting to live a successful retirement. So I think that really is the issue that we need to deal with.
So a couple options, I know that are generally talked about are things like downsizing or getting a home equity loan. So maybe we could just run through those and get the ups and downs for each one of those. Let's start with downsizing.
Yeah, so if you find yourself as an empty nester I think downsizing is the logical option. But as house prices have increased in all the major cities, I think what is perhaps not surprising here is that so have the prices for those condos or other residential properties that you want to downsize to.
In fact, if you wanted something hands off, those condos also come with a lot of monthly maintenance fees, so maintenance free, but high maintenance fees. So when you do the math, you may find that, hey, I'm downsizing but I'm not saving as much money as I expected to save. That may mean perhaps moving to a suburb far away from the city, but that's a lifestyle choice.
Are you willing to move away from family and the community where you may have lived for a long period of your life? So although downsizing is an option. It's better to be prepared and do your homework ahead of time.
OK. So downsizing could be an option, but again, to your point lots of things to consider. Option behind door number two is getting a loan, a home equity loan, against the house.
Yeah. A home equity line of credit is a great way to leverage the equity inside your house. And now that we are facing the prospect of low interest rates, it might not be a bad time to, in fact, investigate this option. But just understand that this is a loan. So at the minimum, you do have to make the interest payments on it. And at some point, somebody has to repay the capital as well, whether that's you or your estate.
Now, if taking out this loan in fact causes you anxiety, then perhaps this is not the best option for you. If you believe you can manage this loan, then this is a great way to have your cake and eat it too. You're living inside your house, yet you're using the equity inside your house to your benefit.
All right. How do we go about making the right decision? I mean any ideas there.
Yeah, I think, do your pre-work. And some of this pre-work will require you to talk to a financial planner or an advisor. So do lean on that professional for support.
Chris, always a pleasure. Thanks so much.
Thank you, Kim.
Chris Gandhu, high net worth planner with TD wealth. And if you have questions or you would like to ask MoneyTalk a question, you can send it to moneytalk@td.com with Ask MoneyTalk in the subject line. Then you can ask a question. We will find someone to answer it for you, and you will find it on moneytalkgo.com, amongst a whole bunch of other questions we've had answered for you.
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