Recent turmoil in the U.S. credit and real estate markets, with one in 10 homes having been in some phase of the foreclosure process during the last year, justifiably has Americans close to retirement age - the leading edge of the Baby Boom - nervously eyeing what they see as their retirement nest-egg and hoping that it doesn't slip from a premium Grade "A" Jumbo double-yolker to a Grade "A" small, or worse. The 'Henny-Penny' type of homeowner, whether in Canada or the US. - those who are sure that "the sky is falling" at the first drop of rain - may wish to consider moving equity they have watched build up over time as they paid down their mortgage to more diversified holdings. In Canada, unlike the United States, where interest paid on a home mortgage is NOT tax-deductible - as it is in the U.S. - the nervous homeowner who shifts some of the equity that has built up in his or her home to a conservative, balanced investment portfolio not only diversifies and gains an umbreella if stormy times lay ahead in Canada's real estate market, but also gains a tax-advantage. The interest paid on borrowed funds that are secured against the equity in your home and used for investment purposes is tax-deductible in Canada, unlike the interest you have paid on your home mortgage to build that equity in the first place.
Part of the speculative impulse that propelled the U.S. real estate markets into the murky waters they now find themselves in was fueled by the tax advantage homeowners could gain by writing off the interest on their mortgage payments - aside, of course, from their overly lax lending policies and regulatory oversight that ended in swaths of creditor red ink as the market for sub-prime mortgages and overtly speculative 'Ninja' mortgages ('No Income, No Job or Assets') overheated and then boiled over. The bigger the mortgage, the bigger the write-off against your employment and investment income. This was particularly attractive for business owners, middle-class investors and the self-employed making big money in the Clinton years, only to see the economy tank at the end of George Bush's presidency - precisely the newly affluent who along with blue-collar manufacturing worker who are particularly vulnerable if the markets for goods and services go south - or overseas.
Now, as the big bulge of Baby Boomers gets set to retire, both in Canada and the United States, it is becoming clear that the long-term growth oriented investment practices and strategies that have feathered retirement nests on both sides of the border may not be the best strategies to pursue once you are in the nest, atop the egg and incubating it. The equity in a home - particularly if you have managed to pay off that home, as most but not all homeowners will do by the time the timing for retirement is ripe - is a significant asset that needs to be protected. Leveraging that financial asset you have quietly built up over time into a secured, safe and stable income stream in retirement takes as much forethought and planning as it did to accumulate your nest egg in the first place.
Remember, a properly diversified investment portfolio will almost always weather a downturn in the economy better than an undiversified one will, particularly if one or two sectors are particularly challenged by market conditions and trends. Ensuring the equity assets you built up in a home as careers were pursued and families were raised is critical to your wealth management and retirement planning strategies once the fledglings have left the nest. Utilizing the equity you have built up in your home to get an additional investment stream up and working in your favour by essentially securitizing your home equity through a home equity loan may be one of the best options there is for doing so - particularly in Canada where this gives the homeowner/investor access to tax advantages long enjoyed by our counterparts down south.
Of course, as with any investment strategy, do the research. Talking to an experienced investment planner and Canadian mortgage broker can help you determine whether now is the time to diversify the nest egg of equity you have built up in your home. Then, and only then, can you get back to dreaming of that snug, retirement bird house in the Kawarthas, Kananaskis or Kennebec.
For more information on home equity loans, or to see if you qualify for a home equity loan that will allow you to diversify and protect the equity you have built up in your home visit an experienced and trusted Canadian mortgage broker at www.candianmortgagesinc.ca or call 1-888-465-1432 to speak to an experienced broker agent.
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