Like many retirees, Louise wants to dispose of his house to move into a smaller home. The single 60 years trying to spend less time and less money for the upkeep of the home. She also had the thunderbolt for a $ 185,000 condo in a complex under construction not far from her home, where she made an offer and gave a deposit of $ 1,000.
There three months, she put her house up for sale. She keeps asking $ 215,000. But since it is on the market, his residence has aroused the interest of any potential buyer. And every week, Louise anxiety increases. If she wants the condo she covets it is reserved, it must pay an additional deposit of $ 4,000 in a few months. The proponents also ask him to withdraw his offer to purchase the condition stipulating that it must have sold his own house before realizing the transaction.
Louise is annoyed. She wants this condo montreal. But what would happen if it bought before the house is sold? What would be the extent of the expenses? This maneuver would it be harmful for retirement income? “I have a good pension, but I’m not made of gold, she said. I do not want to be stuck financially if needed several months to sell my house. “
Does A reason to do? We asked financial planner Isabelle Gauthier, Bank of Montreal, Louise submit the draft to the test numbers. After reviewing the situation, Ms. Gauthier prevents restated: “If she buys before the house is sold, it could end up with a very tight budget,” she said.
Let’s see the picture. Currently, Louise, who made his career in the field of health, receives a pension of $ 41,000 Retirement System of government employees and (RREGOP) and another $ 8,000 to the Régie des rentes du Québec (QPP). She finished paying his mortgage last spring, shortly after the beginning of retirement. Since then, she managed to save $ 300 per month to a TFSA, but has recently used the sums accumulated to pay for repairs to the roof of his house.
For the moment, Louise did not need to use the funds accumulated in your RRSP. However, at age 65, his RREGOP decrease to $ 30,000. She begins to receive his pension from the federal Old Age Security ($ 6,500) in addition to the QPP pension, but will have a shortfall of $ 4,400, if it wants to maintain its current lifestyle. This sum shall be drawn from his RRSP. “The money she has in his RRSPs are just sufficient to keep the cost of living up to 90 years,” says Isabelle Gauthier.
Suppose now that Louise bought her condo, and then he needs six months to reach to sell his house. It will therefore take the total value of the condo is $ 185,000. It can use a line of credit $ 120,000 already approved on the value of his home. It will also enter into a new line of credit home equity condo for $ 65,000. “The interest payments on these two lines of credit until the sale of his current residence would mean an expenditure of $ 566 per month, assuming an interest rate of 3.67%, says financial planner. By adding the condo fees, the municipal and school taxes and insurance, calculate about $ 950 per month. “
Louise saving $ 300 per month. If it spends the money to expenses related to the purchase of the condo, it is $ 650 a month to find. Over six months, so we’re talking $ 3,900. The retiree will draw this amount in RRSPs. Counting the amounts to be paid to the tax at the time of withdrawal, that means she must withdraw $ 5100 from his RRSPs. “But if she uses her RRSP to cover the additional costs for the purchase of the condo, it will not be able to cover the cost of living throughout retirement,” said Isabelle Gauthier.
Because of this risk, Ms. Gauthier highly recommend Louise to consider renting instead. In the city where she lives, she could easily find a home that meets their requirements for $ 800 per month. At the time of the sale of her house, she empocherait $ 200,000 could be invested in a balanced portfolio. “If we calculate a yield of 5% per annum on this amount, the interest it would generate $ 835 per month without it draws in its capital,” says financial planner. It does not have to pay condo fees or municipal taxes or any work. Perhaps this just the best solution to give Louise the peace of mind they are looking for.
“If Louise buys a condo without having sold her house, she jeopardizes the cost of living, as it should borrow the full amount needed to purchase for an indefinite period. In his case, it would clearly be advantageous to rent an apartment and invest the profit realized on the sale of his property. “