VBNF Blog

This year boomers started turning 65. Ten million of them, representing one third of the entire Canadian population, will reach retirement age over the next 15 years. Since they are the largest and wealthiest segment of the population, what they plan to do will have a strong impact on the economy, especially in the housing market.

Studies by several major banks have looked at the trends for boomers and have found that 39 per cent of boomers who plan to retire in the next three years still have a mortgage on their home, but two-thirds of boomers say they will retire mortgage-free. Forty per cent of boomers say they plan to move and of those, 41 per cent say they won’t need a new mortgage for their new home.

This is the generation that saw the value in their homes grow exponentially and this increase in value has formed a large part of their retirement savings plans. While saving money from a weekly pay cheque is still part of an overall saving strategy, home equity has also been a part of the strategy.

This will have a definite impact in the housing market. While it’s still a good time for first time home  buyers, many of the mortgage rule changes earlier this year has made it more challenging for this segment to get into a home, especially with shorter amortizations and the end of zero down payment programs.

While economists have predicted a stable, balanced market over the next year with the Prime interest rate staying where it is until the end of 2012, variable rate discounts have disappeared and fixed rates are gradually increasing, which may impact first time buyers. The market may see a small surplus in homes resulting in more muted price appreciation as boomers down size. Prices may make it more affordable for first time home buyers and the move-up market.

A CIBC report also suggests that younger Canadians – those aged 25 to 34 – believe they will be able to retire based on savings they will accumulate over their working life. But boomers aged 55 to 64 are not so sure.

This same report suggests that many Canadians getting closer to retirement are relooking at the retirement savings goals they’ve set for themselves and are making adjustments. With interest rates low, coupled with a relatively stable economy, it may be a good time for boomers who have built equity in their homes to look at other mortgage options such as reverse mortgages.

These findings also demonstrate the importance of having a plan in place and making progress toward your goals every year, to give you the flexibility to make choices about how and when you retire.  Whether you’re reaching retirement or just starting out, speaking to a mortgage agent should be part of a family’s overall retirement planning along with a financial planner. There are a number of strategies and options for paying down a mortgage and building a retirement nest egg.