Borrowing for retirees can be filled with challenges, but it's on the rise
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OTTAWA — At 66, Wayne Hystad is signing on for a new mortgage in a move to consolidate his debt and allow him to keep his Edmonton condominium.
"It means I keep my place and I'll just have a higher mortgage, which I can handle," he says. "I can live now."
But he has a message for other retirees thinking about borrowing money: If you can't pay for it, don't buy it.
Hystad, who sank into depression after he separated from his wife in 2009 and she died in 2011, said his mortgage was paid, but he got into trouble with a line of credit and credit cards, racking up thousands in debt.
"Through my depression I did the stupid spending," he said. "It was my fault. There's no excuses."
However Hystad isn't alone among seniors who are borrowing more.
According to a report by Equifax, debt excluding mortgages held by those over 65 averaged $15,244 in the fourth quarter of last year.
That was below the Canadian average of $22,113 — but those over 65 posted the highest percentage growth compared with the fourth quarter of 2015 at 6.1 per cent.
Scott Hannah, president of the Credit Counselling Society, says the number of people aged 55 or older seeking help at his organization has grown to 21 per cent of the society's client base compared with five per cent 20 years ago.
"That's significant and worrisome because unlike people who are working like you and me, many of these people are on fixed incomes," he says.
Hannah says if a senior is thinking about borrowing they need to ask themselves why are they borrowing — is it for a need or is it for a want?
"We see things like people taking on debt because they need a new roof and I can appreciate that because if the roof is shot you've got to fix the roof."
But, he adds, it's important to consider alternative solutions, depending on your situation.
"Does it make sense to stay, for example, in a home that you can't afford?" he says.
Larry Moser, a divisional manager at BMO InvestorLine, says it's important for retirees thinking about borrowing money to understand how they are going to pay it back or if they are going to let their estate repay the money after they die.
He says for retirees looking to borrow, the most obvious way if they own their home is to access that equity.
"A lot of retirees are house rich and cash poor and perhaps that's the most easily accessible option," says Moser, adding that if a retiree is looking to borrow money, they should have an exact amount in mind.
"The danger of putting a line of credit against your house is if your intention is to only borrow $200,000, but you put a $500,000 line of credit against your house, you have to have the discipline to tell yourself my intention was to only borrow $200,000."
Moser notes that in most cases of retirees looking to borrow money, it isn't because they want to, but rather it's something they need to do.
As for Hystad, he says he's back on track and looking forward to saving a little so he can travel.
"And pay cash for something I want."
Don’t keep doing what you’ve always done just because you’ve gotten used to spending the money.
If you don't know if you're on track for retirement, who does?