April 5th - 2010

Canadians feel a home is key to retirement: poll

Home buying momentum in Canada continues to gain steam.

Home buying momentum in Canada continues to gain steam. Ten per cent of Canadians are very likely to purchase a home in the next two years, up from seven per cent two years ago, according to the 17th Annual RBC Homeownership Study.

The RBC study conducted by Ipsos Reid found that 91 per cent of Canadian homeowners believe a home is a good investment, the highest level in 12 years, and one-quarter (26 per cent) expect their home to be their primary source of income when they retire.

"Exceptionally low mortgage rates and improved affordability have been key reasons for the resurgence in the housing market this past year," Robert Hogue, senior economist, RBC, said in a press release.

Most Canadians who intend to buy a new home in the next two years are planning to take a fixed rate mortgage (44 per cent). However, combination mortgages had the highest increase in popularity this year, with 40 per cent intending to take both a variable and fixed rate component, up from 32 per cent last year.

For Canadians planning to take a fixed rate or combination mortgage, seven-in-10 intend to take a term of five years or longer. Sixteen per cent said they intend to take a variable rate mortgage, down from 20 per cent in 2009.

"Canadians seem to be opting for more caution this year and may be factoring in potential rate increases down the road," said Marcia Moffat, RBC's head of home equity financing.

Advice for home owners/ buyers
In addition to seeking customized advice from a financial advisor, Moffat provides the following tips:

For homebuyers:

  1. Lock in your rate when you apply for your mortgage.
    Depending on your situation, there are rate guarantees that allow you to lock in your mortgage rate for up to 120 days.
  2. "Stress test" your mortgage for rate increases.
    If you are concerned about affordability down the road, knowing what your payments would be with a one - three per cent rate increase will give you greater peace of mind that your new home is affordable both today and in a few years time, when rates might be higher.
  3. For first time homebuyers, leave some wiggle room.
    With a pre-approved mortgage you will know what you can afford today. But before making a decision to find a home at the top of your pre-approval amount, also consider your current lifestyle preferences and how future changes in your circumstances could impact your payment comfort zone.

For homeowners renewing their mortgage:

  1. Take advantage of early renewal options.
    Some mortgages allow you to renew up to 120 days before the end of your term. This means you can lock in your new mortgage rate early.
  2. Consider a combination (hybrid) mortgage to manage your interest costs.

If you are unsure of where rates are headed, consider splitting your mortgage into part fixed and part variable. You will have rate protection on the fixed rate mortgage portion, while you benefit from today's low interest rates on the variable rate mortgage portion.
Canadians can visit the new RBC Advice Centre www.rbcadvicecentre.com to stress test their mortgage for potential rate increases.

Boring is beautiful when retirement planning
While many Canadian homeowners expect their home to be their primary source of income when they retire, Patricia Lovett-Reid, Sr. VP, TD Waterhouse Canada, told delegates at OREA’s recent leadership conference not to put all their eggs in one basket.

“Boring is beautiful,” said Lovett-Reid. “You want companies with real earnings, who are leaders in their industry and pay real dividends – slow and steady.” She acknowledged that it can be tough to convince REALTORS® to invest in anything other than real estate. “It’s a natural tendency to lean towards something you know and do best and for you that’s real estate. But when it comes to planning for your retirement and choosing investments, diversified, boring and profitable is what you want.”

Lovett Reid provided a wealth of information on retirement investment: Stick to a balanced asset mix of blue chip dividend paying stocks and investment grade bonds or a portfolio of mutual funds which replicate such a strategy. Look to corporate bonds. Invest with the government. And consider exposure to gold. It's had a great run.

Lovett-Reid concluded her presentation with the following advice for delegates:

  1. Get back to basics in terms of your portfolio.
  2. Think long – people are living longer these days.
  3. Retire to something, not from something
  4. Have a “battle buddy”... rely on help from your financial advisor.
  5. Keep something up your sleeve – have cash on hand for emergencies.
  6. Stay true to your asset allocations. In other words, buy quality.
  7. Have a Plan B in case you can’t keep doing what you are doing now.

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Ontario Real Estate Association

Jean-Adrien Delicano

Manager, Media Relations

JeanAdrienD@orea.com

416-445-9910 ext. 246