Many Canadian seniors prefer to remain in their own homes as long as possible for a variety of reasons, including a comfortable feeling of security, familiarity, happy memories and an emotional connection to the neighborhood and community. In addition, many seniors prefer to remain in their home due to the support network built up over the years, through neighbors, friends, church or other regular social activities.
Unfortunately, this desire to stay at home is not always possible in terms of the seniors’ capacity to pay for it. It is not uncommon for seniors to be house-rich and cash-poor.
For many seniors, their home is their only major asset. It cannot be readily converted into income–in the perception of many–unless the home is sold and the senior moves out. Naturally, this can be a very stressful scenario. On the other hand, there are seniors who, by circumstance or choice, elect to sell the home and buy a condominium in a retirement area, and have a considerable amount of cash left over for their financial and lifestyle needs.
There are options for seniors who want to stay in their own homes but need or wish to supplement their income. One option is to rent out a self-contained basement suite to a student. Another option is to rent out spare rooms in the house–in other words, have boarders who share common kitchen facilities and washrooms. In many cases the income is not taxable, either because the income can be offset by a per cent of the house expenses, or because of the low amount of income involved.
The above options are attractive to some seniors, as they may provide additional benefits in the form of companionship and the feeling of security. This latter benefit could be particularly attractive, especially if the owner is often away on trips. On the other hand, these options may not be attractive because of the loss of privacy. There could also be municipal by-law regulations that technically restrict having tenants. In many cases these regulations are flexible, depending on various factors such as current municipal policy regarding enforcement, and the extenuating circumstances of the owner.
There are options, such as the “reverse mortgage”, which are designed to help senior homeowners unlock the equity in their homes and convert it into income. There are pros and cons of reverse mortgages, and they are not for everyone. You need to obtain independent legal advice before you commit to any reverse mortgage. In other cases, debt could be deferred so that existing income is not diluted. In this example, some provinces have established a property tax deferment program for seniors. In addition, loans obtained by a homeowner from the Canada Mortgage and Housing Corporation (CMHC) for rehabilitation or improvement of the home could be waived or deferred.
Equity is the net value of a home after all debts against the home have been deducted (an outstanding mortgage, for example). If this equity can be converted into cash or income, without the owner having to sell the house and/or relinquish possession (using a reverse mortgage, for example), many seniors would be able to afford to stay in their homes. In this situation, a lump-sum and/or regular income stream is obtained, and no payments are made until the home is sold.
Although this improvement in cash flow provides a higher standard of living and meets other personal or financial needs, it may also reduce the amount available to be left to the seniors’ estates. This may or may not be an issue of concern to the seniors or the beneficiaries. A more detailed discussion of reverse mortgages is covered in a separate article.
Keep in mind that CMHC and provincial programs vary from province to province and are constantly changing, so it is important to obtain a current update.
