Do You Need Time For Your Retirement Investments To Recover?

Team Gill • August 11, 2020

COVID-19 is wreaking havoc on retirement investments, particularly for those who rely on dividends as part of their income. Over the past decade, many older Canadians have taken a riskier approach with retirement investments because of low bond yields and interest rates caused by the financial crisis in 2008. 

Instead of playing it safe, many retirees have turned to the stock market for better returns and dividend income. With global markets in a highly volatile state due to the pandemic, right now it is challenging to move investments to safer ground, and many companies have put dividend payments on hold. 

If you need immediate cash to ride out the remainder of the pandemic, you may think you need to liquidate some investments. But what if there were other options that can provide the much-needed cash without taking investment losses? Consider borrowing from your home equity instead of liquidating investments prematurely. Here’s why this makes sense.

Take advantage of low interest rates

Uncertainty in the economy has caused the government to lower interest rates. Mortgage rates are at historic lows, and borrowing money at this point in time doesn’t cost a lot. By gaining access to your home equity through mortgage financing, you can somewhat bridge the gap. You can increase your cash flow until the markets, economy, and your investment portfolio recover. 

Historically, stock markets have always recovered.  

Bloomberg’s Canadian retirement expert Dale Jackson explains, “The S&P 500 lost half its value between October 2007 when the meltdown began and its March 2009 bottom. By October 2013, the S&P 500 topped its pre-meltdown high and has since doubled from there (pre-pandemic). It wasn’t until June 2014 that the TSX topped its pre-meltdown high. It has since rallied an additional 20 per cent (pre-pandemic).”

If the markets recovered both the Great Depression and Great Recession, there’s little reason to fear it won’t happen post-pandemic. The timing of the recovery, however, is uncertain. 

Strategically tapping into home equity

You may be reluctant to use home equity to provide for living expenses until the post-pandemic economy recovers. And that is understandable. You worked hard to pay off your mortgage, why would you want a new one? 

Well, if you’re faced with the choice of selling investments at a loss, or borrowing against your home equity to give yourself  time to bridge the current cash flow gap and allow your investments to recover, it really becomes a matter of calculating the dollars and cents. 

This is where expert financial planning comes in. You should be considering ALL your options, not just the ones we’ve been conditioned to consider over the years. 

Unfortunately, there is no guidebook for navigating a global pandemic. However, there are options you can consider, now is a good time to consider them.

Reverse Mortgage

If you’re 55+ and occupying your home as your primary residence, you should seriously consider a reverse mortgage. It’s the ultimate mortgage deferral option. 

You’ve likely seen commercial ads for reverse mortgages. And while some people think this is a risky way to access funds, if you intend to live in your home throughout your retirement years, it can be an inexpensive source of funds. Especially given our current low-rate environment. 

One common misconception is that the bank owns your home if you get a reverse mortgage. This just simply isn’t true. A reverse mortgage is like any other mortgage, however, instead of making regular payments, the mortgage amount increases each year and is due when you choose to sell your house. 

Other mortgage options

If you’ve got a steady pension income, you may be able to qualify for conventional mortgage financing. However, if you’re still paying off your first mortgage, you can apply for a second mortgage based on the remaining equity in your home. 

It should be noted that a second mortgage is a high-risk option with significantly higher interest rates. If you’re cash-strapped already and are having trouble making payments on your first mortgage, there’s no benefit gained by adding a second payment.

Another option to consider is a Home Equity Line of Credit (HELOC), which operates much like a bank overdraft. It’s a pool of funds attached to your home that can be used when cash flow is low and paid back when cash flow improves. Interest rates are typically low because the line of credit is secured by your home equity. Further, interest is calculated based on actual borrowing not on the amount approved. 

Avoid Fear-Based Decisions

Making fear-based investment decisions rarely work out. Because these are uncertain times, it’s important to consult with financial experts to discuss your options and allay your concerns. 

Remember you’re not alone. Millions of Canadians are in similar circumstances. There are options. As part of a solid financial plan, using your home equity can provide funds that act as a bridge to avoid investment losses until the economy and market recover. 

If you’d like to discuss your financial situation, contact us anytime for a free consultation. We would love to work through all your options with you!

Share

Sign up to to our newsletter to hear weekly updates on market news, timely buyer/seller tips, and up to date rates

SIGN UP
Mick & Sheila Gill
CANADIAN MORTGAGE EXPERTS
RECENT POSTS 

Your Guide To The A First Home Savings Account (FHSA)

By Team Gill • April 22, 2025
Dreaming of owning your first home? A First Home Savings Account (FHSA) could be your key to turning that dream into a reality. Let's dive into what an FHSA is, how it works, and why it's a smart investment for first-time homebuyers. What is an FHSA? An FHSA is a registered plan designed to help you save for your first home taxfree. If you're at least 18 years old, have a Social Insurance Number (SIN), and have not owned a home where you lived for the past four calendar years, you may be eligible to open an FHSA. Reasons to Invest in an FHSA: Save up to $40,000 for your first home. Contribute tax-free for up to 15 years. Carry over unused contribution room to the next year, up to a maximum of $8,000. Potentially reduce your tax bill and carry forward undeducted contributions indefinitely. Pay no taxes on investment earnings. Complements the Home Buyers’ Plan (HBP). How Does an FHSA Work? Open Your FHSA: Start investing tax-free by opening your FHSA. Contribute Often: Make tax-deductible contributions of up to $8,000 annually to help your money grow faster. Withdraw for Your Home: Make a tax-free withdrawal at any time to purchase your first home. Benefits of an FHSA: Tax-Deductible Contributions: Contribute up to $8,000 annually, reducing your taxable income. Tax-Free Earnings: Enjoy tax-free growth on your investments within the FHSA. No Taxes on Withdrawals: Pay $0 in taxes on withdrawals used to buy a qualifying home. Numbers to Know: $8,000: Annual tax-deductible FHSA contribution limit. $40,000: Lifetime FHSA contribution limit. $0: Taxes on FHSA earnings when used for a qualifying home purchase. In Conclusion A First Home Savings Account (FHSA) is a powerful tool for first-time homebuyers, offering tax benefits and a structured approach to saving for homeownership. By taking advantage of an FHSA, you can accelerate your journey towards owning your first home and make your dream a reality sooner than you think. 

4 Ways to Access Your Home Equity

By Team Gill • April 8, 2025
If you've been a homeowner for many years, it is likely your property value has increased significantly. One advantage of homeownership is the opportunity to build equity. Home equity growth, partnered with the security of living in your own home, is why most Canadians believe homeownership is the best choice for them! While home equity is one of your greatest assets, accessing home equity is often overlooked when putting together a comprehensive financial plan. So if you’re looking for a way to access some of your home equity, you’ve come to the right place! Simply put, home equity is the actual market value of your property minus what you owe. For instance, if your home has a market value of $650k and you owe $150k, you have $500k in home equity. If you want to stay in your home but also access the equity you have built up over the years, there are four options to consider. Conventional Mortgage Refinance Assuming you qualify for the mortgage, most lenders will allow you to borrow up to 80% of your property’s value through a conventional refinance. Let’s say your property is worth $500k and you owe $300k on your existing mortgage. If you were to refinance up to 80%, you would qualify to borrow $400k. After paying out your first mortgage of $300k, you’d end up with $100k (minus any fees to break your mortgage) to spend however you like. Even if you paid off your mortgage years ago and own your property with a clear title (no mortgage), you can secure a new mortgage on your property. Reverse Mortgage A reverse mortgage allows Canadian homeowners 55 or older to turn the equity in their home into tax-free cash. There is no income or credit verification; you maintain ownership of your home, and you aren't required to make any mortgage payments. The full amount of the mortgage will become due when you decide to move or sell. Unlike a conventional mortgage refinance, reverse mortgages won’t allow you to borrow up to 80% of your home equity. Rather, you can access a lesser amount of equity depending on your age. The interest rates on a reverse mortgage can be slightly higher than the best rates currently being offered through standard mortgage financing. However, the difference is not outrageous, and this is an option worth considering as the benefits of freeing up cash without mortgage payments provides you with increased flexibility. Home Equity Line of Credit (HELOC) A Home Equity Line of Credit allows you to set up access to the equity you have in your home but only pay interest if you use it. Qualifying for a HELOC may be challenging as lender criteria can be pretty strict. Unlike a conventional mortgage, a HELOC doesn't usually have an amortization, so you're only required to make the interest payments on the amount you've borrowed. Second Position Mortgage If the cost to break your mortgage is really high, but you need access to cash before your existing mortgage renews, consider a second mortgage. A second mortgage typically has a set amount of time in which you have to repay the loan (term) as well as a fixed interest rate. This rate is usually higher than conventional financing. After you have received the loan proceeds, you can spend the money any way you like, but you will need to make regular payments on the second mortgage until it's paid off. If you’re looking for a way to access the equity in your home to free up some cash, please get in touch. You’ve got options, and we can work together to find the best option for you!