Tapping home equity for retirement makes sense, here's why Canadians don't

New research reveals the barriers and behavioural hurdles to leveraging largest asset

Tapping home equity for retirement makes sense, here's why Canadians don't
Steve Randall

For most Canadian retirees their home is their largest asset, often holding a significant share of their wealth and equity that could be accessed.

But while there are several options for tapping home equity for retirement, new research has investigated why the proportion of Canadians that do so is small including how financial planners may consider home equity as separate to other assets and solutions.

Funded by The Canadian Foundation for Financial Planning (formerly the FP Canada Research Foundation) researchers polled 1,200 Canadian consumers who are either retired or should be planning their retirement, along with 500 financial planners with a CFP or QAFP certification.

They identified several barriers to using home equity to help fund retirement and the technical aspects of using home equity release schemes (HERS). Among the strategies considered were reverse mortgages, home equity lines of credit (HELOCs), and downsizing to buy a smaller home or rent a home.

Vishaal Baulkaran from University of Lethbridge and Pawan Jain from Virginia Commonwealth University also found that consumers are generally willing to use their home equity in times of financial hardship when faced with costs such as care or nursing, but emotional obstacles along with the costs and complexity of equity release products, prevent consumers from using them to fund retirement.

For financial planners, while they are comfortable providing advice about HERS, their preference for boosting retirement income is selling investment products.

However, not all planners feel knowledgeable enough about home equity release schemes and behavioural bias also plays a role in low adoption of the products.

How FPs can help

The research shows that equity release products are more attractive to consumers when recommended by a planner, but they are not the right option for every client.

It highlights several ways that planners can help consumers leverage HERS in retirement such as improving their technical knowledge about the products and strategies and effectively educate their clients about available options.

It also calls on planners to be aware of when bias impacts their willingness to recommend HERS to ensure the appropriate advice is given and to rigorously investigate the various options available to facilitate home equity release.

The full report is free and available here.