Observation
Upon reaching retirement, some "good customers" are surprised to suddenly find themselves considered bad debtors by their bank.
Depending on their financial situation and the degree of amortization of their mortgage, retired clients are advised to sell their house or apartment.
Depreciation required
If, as a general rule, a mortgage loan is granted for residential real estate up to 75-80% of the value of the property for working clients under 55 years of age.
This percentage will drop drastically to around 50% / 60% at the time of retirement!
The general rule applied for the charge/interest ratio is that the cost of the mortgage calculated on the basis of an average rate of 6.5% should not exceed one third of the income.
It is easy to understand from the above that a large proportion of seniors are likely to find themselves in very unpleasant situations in the near future, this phenomenon being further accentuated by a decrease in LPP pensions and an additional decrease for those who have used part of their LPP capital for access to property.
According to the analyses, only 40% of property owners will be able to meet the banks' financing criteria when they no longer have a gainful activity , 40% will have to take austerity measures and 20% will find themselves in a difficult situation to bear.
Real estate strategy for retirement
1 – Investing in mortgages, amortizing?
A mortgage isn't necessarily a burden. A mortgage loan can be an investment alternative that offers reassurance in this period of negative interest rates.
This opportunity is possible, but it comes at a tax cost, especially since our tax system for private rental values does not help matters and it is felt more or less heavily depending on the Canton.
2 – Saving in the third pillar and/or possible redemption in LPP?
In this way you save on taxes and will have more money available in retirement to adapt your home or reduce your mortgage.
Saving for retirement is no longer possible; what measures can be considered?
- Passing on one's house to children while retaining a right of habitation or usufruct.
That the children (if their income is sufficient) become joint and several debtors for the mortgage loan.
- And if the loan-to-value ratio allows, you can create a "bank annuity ." The mortgage is increased, and part of this credit can be used to immediately cover the interest payments for the next 10 to 15 years at a fixed rate, with the remainder used to supplement your income. Banks are rather hesitant about this.
- As a long-term solution , and if the loan-to-value ratio allows, a life annuity can be established—a "life annuity, with or without repayment ." The mortgage is increased, and the loan is used to finance an immediate life annuity, thus balancing the loan-to-interest ratio and improving income. The annuity is pledged to the lender. Clearly, this solution will reduce the capital to be passed on to heirs.
- Sale with life annuity
- The principle is simple: people of a certain age or retired sell their house at a price below market value.
- In exchange, he lives there until their death without paying rent and, sometimes, even receiving a supplementary annuity.
- He also receives a lump sum upon conclusion (the initial payment) allowing for immediate liquidity.
- The potential buyer will therefore consider the possible profit, which is the market value of the property minus the initial deposit (the down payment). But also, and this is the most delicate aspect, the amount of any potential annuity, multiplied by the number of months until the seller's potential death.
In summary:
For future seniors (of which we are all a part) who are already homeowners, it is necessary to anticipate, analyze and implement exit strategies as soon as possible.
It is clear that the third and fourth age are not really suited to direct real estate investments and that for this category of investors it is better to turn to indirect real estate investment which exists in different forms.
I remain at your disposal to discuss this further.
