For many British Columbians, a large amount of their net worth is tied up in the equity of their principal residence.  There are four main avenues to access this equity - all with some advantages and disadvantages:

1) Sell Your Home

This is the simplest solution but the most disruptive.  This would give you access to all the equity, but you are forced to find a new place to live.  We find this an effective strategy when clients want to downsize from the “family home” into a more manageable living situation.  They no longer want to deal with managing and maintaining a large single dwelling. They may want to travel and have an easier place to manage when not around.

2) BC Property Tax Deferral Program

The BC property tax deferment program allows eligible property owners 55 years of age and older to defer their property tax.

Instead of paying property tax, they use this cash for their lifestyle and defer payment of property tax until they sell their house or upon death.

It is the cheapest and least disruptive.  The interest rate is set twice a year, on April 1^st and October 1^st, at prime minus 2% and it is not compounded.  This means interest is only charged on the outstanding property tax owing and not on the outstanding interest.

It is worth noting that if you defer your property tax, you are unable to subsequently apply for additional borrowing against your home.

3) Home Equity Line of Credit  

A home equity line of credit allows homeowners to access the equity they built up in their homes.  It is a revolving line of credit, which means you can withdraw funds as needed up to your credit limit.

Borrowers typically need a good credit history, sufficient equity in their home, and a stable income.  To qualify for a line of credit, you need sufficient collateral (your home) and sufficient income to finance the interest payments on the line of credit.

4) Reverse Mortgage

A reverse mortgage is similar to a home equity line of credit - the main difference is that it allows homeowners to convert a portion of their home equity but you are not required to make payments towards the loan. The loan and accumulated interest only need to be paid upon the sale of your principal residence or upon death.

You can either take a lump sum payment or take a monthly income of the amount you qualify for.

It is typically more costly than a line of credit. However, unlike a line of credit, you only need equity in your principal residence to qualify.  It does not have an income qualification which means it’s much easier to obtain than a line of credit.

Additional Points

We typically recommend that you put a line of credit against your principal residence around your retirement date.  This is done for emergency purposes and specifically as a form of long-term care protection.  This will allow you to use some of the equity in your house to pay for long-term care costs later in the life without forcing you to sell your principal residence.

But make sure you have your line of credit in place before you use the BC Property Tax Deferral Program.  If you defer your property tax, you will not qualify for a line of credit but if you have a line of credit, you can still defer your property tax.   The order matters.

Lastly, if you own your house jointly with your spouse, please confirm with your financial institution that you will not be required to requalify for the line of credit on the death of either of the joint owners.  You may not qualify, or you may qualify for a lower amount and would also be forced to repay any deferred property taxes.

Please give us a call if you have any questions.

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