A recent survey of high net worth Canadians, those with investable assets of $500,000 or more, reveals that for this group, having a mortgage may be a considered and deliberate investment strategy. Sixty-seven per cent of those who have a mortgage indicated they have the cash available to pay for their home in-full.
"The notion that a mortgage is used only when funds aren't available to pay cash for your home doesn't ring true for many wealthy Canadians," says Peter Veselinovich, vice-president of banking and mortgage operations at Investors Group.
The Investors Group survey, which examined how high net worth Canadians are using their mortgages, highlights strategies that touch on a variety of financial planning tactics that range from tax planning to income generating rental properties.
Property ownership is part of the plan
Overall, seven-in-ten high net worth Canadians say they would not think about purchasing property without reviewing it as part of their overall financial plan and almost half (46 per cent) say they wouldn't make changes to their mortgage without reviewing it as part of their overall financial plan. One-in-five were provided advice by their financial advisor on mortgage options that would best suit their financial situation.
Property ownership by the numbers:
- 32 per cent of high-net-worth Canadians own additional commercial or residential properties;
- 1-in-10 own three or more;
- 51 per cent have additional properties for recreational use;
- 42 per cent have investment rental properties;
- 11 per cent have purchased property for their parents or children to live in
"It's good to see that some Canadians are including these important decisions as part of their overall financial plan and engaging experts for advice," says Peter. "Your current and future business strategy, retirement plans, stage of life and overall financial goals will all influence the mortgage you select."
Mortgages in retirement
While some Canadians plan to pay off their mortgage before retirement, more than one-quarter of wealthy Canadians (with mortgages) don't have plans to become mortgage-free before retirement.
"Cashing in investments to pay off your mortgage before retirement could trigger capital gains. That would mean additional taxes and less money to invest," says Peter. "Retirees in this financial demographic who are not concerned about meeting their mortgage payments see a tax advantage to maintaining a low-interest mortgage on their homes."
Limited fear over rising rates
When asked if they were worried about rising rates in the next year, three years or five, those with any concern amounted to eight per cent, 14 per cent, and 18 per cent of the overall group in each respective time frame.
"While fluctuating interest rates can play a role in selecting a mortgage that fits with your financial situation, there are a number of additional considerations that Canadians need to factor into the equation," adds Peter. "A financial advisor can help you look at the entire picture and select an option that will work for you."