Situation: Ontario couple who sold home five years ago, now faces huge rent increase and tough choices
Max and Lori want to spend perhaps $1.4 million to buy a condo or a townhouse or an apartment in an older high-rise, and finance a $400,000 down payment with a loan secured by their substantial stock portfolio. A loan would avoid the sale of assets and big tax bills, but it would leave them susceptible to a rise in interest rates.
Their best asset is their good health, but that fact actually creates a special risk, Winkelmolen explains. They have a good chance of reaching their 90s and, statistically, a 25 per cent chance of one partner living to 97 and a 10 per cent chance of one making to age 100. Their prospects for long life mean they have to stretch their money for what could be another quarter century.Being out of the housing market and renting while home prices soared has created a big problem for Max and Lori.
For now, Max and Lori are in a tough spot. Either they pay the higher rent or squeeze their assets for cash for a house. They have $115,234 in TFSAs, a drop in the bucket for buying a house or condo with a seven-figure price tag. If they sell most of the assets in their non-registered accounts to provide $1.4 million for a house and $100,000 for legal costs, moving, title and so on, they will have big bills for capital gains. If they sell $659,353 in their RRIFs they will have a 53.
Finally, Winkelmolen notes, leveraging assets by a loan means that a 37 per cent drop in stock prices — think 2008 — would wipe out their liquid net worth.