Your home, your unforeseen treasure

Is the math right, Ron thought? He and his wife could barely afford their Toronto house 21 years ago when they bought it for $395,000. The first time a house on their street sold for $1 million — a decade later — people predicted a housing bubble, but it never burst.

Today, a similar home in his neighbourhood is selling for nearly $2 million. Ron redid the tally: Despite the crooked fence and cracked driveway, he’s probably made more than 500% on his home.

That’s great but what can he do with that calculation?

If you are a homeowner in one of Canada’s major centres, and you scrimped and saved for a down payment a couple decades ago, you may be giddy to see your home’s value could have increased fourfold or more.

Currently, home values are seeing prices gain because of low mortgage rates as the government stimulates the pandemic-stricken economy.¹ Those low rates, combined with recent trends toward working from home, have some pre-retirees wondering just what their next move could be.

If you’re in this group, you can justifiably feel self-satisfied that you’ve become a paper millionaire — just think of what doors could now be opening for you: travel, helping your kids, or maybe buying a summer home. Yet, if you come down to earth, taking advantage of that good fortune might not seem so straightforward. Should you cash out?

If the kids have moved out and retirement is nearing, it can be a traditional step to look for something smaller. But if your current home is earning more money than you do every year, does that still make sense? Are big renovations a smarter move?

Overshadowing anyone’s plans is the COVID-19 pandemic which brings uncertainty and paralysis to any major move, says Natasha Kovacs, a Senior Financial Planner with TD Wealth, based in Windsor, Ontario.

“People are divided over what they want to do with their homes,” says Kovacs. “Their main concern when making a move is often family: being close to the kids or the grandkids and helping them out.”

She also says people may suffer from sticker-shock when they look at how high prices have become for smaller homes and condos, even in smaller communities.

Whether you choose to make a move or stay where you are, each option you consider could come with different advantages and drawbacks, says Kovacs, and people should carefully consider their preferences in context with their whole financial situation.

Before you make a run for your realtor, take stock of some of the more common moves a new or nearly retired homeowner might consider. We’ve outlined some of the pros and cons of each below.

Downsize to smaller home

Do it because you’ll have more time for the things you enjoy. A smaller home can mean lower maintenance costs, reduced utilities bills, less cleaning, and fewer worries. If you like decorating, it gives you a fresh start to completely customize a home to your lifestyle. And, in an ideal situation, you’ll have saved a bundle from selling your former home so that you can afford to travel…or maybe buy a vacation property. Or you can use part of your savings as an emergency fund in case the unexpected — such as a healthcare issue — pops up. You may even make contributions to your grandchildren’s education through a Registered Education Savings Plan (RESP).

Don’t forget that you’ll have a new neighbourhood to get used to. You’ll have to be comfortable with new neighbours and you might need to find a new doctor. Hopefully the new place isn’t too far away for family get-togethers. Another thing to consider: If you are determined to get a moderately priced home, you may have to look further afield than intended, says Kovacs, and it might need more love than you can afford or have the energy for.

Keep your home and do a major reno

Do it because your big beautiful home will always be the spot to host holiday and family gatherings. You’ll finally get to have the kitchen/bathroom/family room you dreamed of and any new renos could help your home’s value when you eventually sell. You may even be able to leverage your home’s value to finance the cost. And if you aren’t ready for a big lifestyle change, renovating may be something you can handle.

Don’t forget that, while it may look great, it may be hard to justify heating a big home all winter for just you and the spouse. You may also want to do some financial planning: Will you need to go into debt for your renos? Would that debt upset your retirement planning? Can you still meet your retirement goals if you hang on to your home?

Use your home’s value to help your kids

Do it because you don’t want your kid living at home forever. Remember that lofty home prices can be a double-edged sword, raising prices for a new generation of home buyers. For some, unlocking part of the value in their home through a Home Equity Line of Credit (HELOC) may be one way parents can help their kids get into the housing market, alongside other options such as co-signing a mortgage or simply making a monetary gift.

Don’t forget that lending large sums of money to close relatives can become complicated and may be uncomfortable, especially when you speak about repayment terms. Things can become even more tangled if you help one child with a home…but another child wants equal funds for other plans. Before you begin giving money away, be sure you have a clear idea how much money you need for your retirement.

Move to the country

Do it because of the fresh air, the lack of congestion, the beauty of the land and the vitality of a healthier lifestyle. Whether you dream of a home on some acreage or a snug corner near a lake you may find a very affordable dream cabin if you stay away from the heated prices of summer home country. The money earned from getting a great price for your city home and buying a country home can really increase your retirement savings.

Don’t forget that being far from the city and your neighbours (and maybe even family!) isn’t for everyone. Unless you are definitely used to living in the country, you’ll want to give this move a lot of thought. As you age, you might be increasingly uncomfortable being a half-hour away from a doctor or a hospital. As well, consider if winters may be a challenge with new costs like getting your driveway plowed out.

Move into a condo

Do it because you can say goodbye to clearing leaves from the eavestroughs (but also a reluctant farewell to all the extra stuff in your old house). You’ll have your own cozy and easily maintained space in the sky, close to all the amenities you need. This kind of transition is welcome if you don’t want extra work, extra steps or high city taxes in your life. Financially, a condo in a prime area may be pricy, but it can also be a great investment.

Don’t forget that the change of scenery might be abrupt if you are not used to hearing your neighbours’ music or smelling their cooking. Condos often offer amenities you may enjoy, such as a pool or gym, but you may resent paying high condo fees for services you don’t use. You’ll own your unit as part of a whole with others so the condo corporation might control when maintenance is done…as well as the colour of your curtains.

Ultimately, Kovacs says that the key to deciding what to do with your home is to have a larger financial goal in mind. Since homes are now such an over-sized part of any retirement plan, she says people can really benefit from sound advice when making major decisions involving them. The value of a large home can fund different causes like a more comfortable retirement, travel, long-term health care or your kid’s homeownership, but a holistic plan can help ensure it all works together.

“No one should map out the financial complexities and reverberations around these moves themselves,” says Kovacs. “Everyone should seek the advice of a financial advisor who can help ensure any changes fit into an overall financial plan.”