How to double your retirement income for free

I am a great believer in taking care of myself.  I don't trust the government and I don't trust any company that I've worked for to look out for my interests above their own particularly after I've left their employ.  Owning free and clear title to your home at retirement is the difference between struggling in your twilight years and being secure.  Likewise, owning a second home in retirement is the difference between being secure and being free.  I don't know about you but tending the garden and shuffleboard for 30 years is not my idea of going out in style.  I want to travel and be creative and learn something that doesn't relate to my future economic status.  I want retirement to be the best years of my life not just an acceptable end to it.

By purchasing just one additional home and having your tenants pay off the mortgage would not only be a good investment for the equity it would add to your balance sheet but more importantly it would allow for an extra income of $1500 - 2000 per month in today's dollars.  One great thing about real estate is that its an inflation hedge.  Lets assume that you were retiring today and you are an average Canadian earning $2834 each month from CPP, Old Age Security, a private pension, and RRSPs; certainly enough if you're debt free.  Make that $4,500 per month and you're going on a Mediterranean Cruise!

But let's take the worst case scenario and assume the government is finally going to deal with the  fact that it's pension plans are drastically underfunded and they've left it until the ratio of working vs. retired people is way out of whack.  Now your government pensions have been cut in half (plus your taxes have gone up), and your RRSPs and defined contribution pension from work have been devastated by the massive collapse of the major economies of the world and they have been cut to one third of their expected value.  Now try living on $1130 per month.  And this is the result of proper financial planning; if you've got some debt left over you can forget about retiring all together.  In this scenario one rental property would more than double your income and it would not depend on the government to make wise decisions or your company to survive an economic crisis.  And don't think that because you work for the government and you have a defined benefit pension that you're untouchable.  Just ask those that spent a lifetime working for the state of Florida how secure their pensions are if the state government declares bankruptcy as is expected?

There are so many wonderful places to invest our money in this world even when it's in financial turmoil but we need to take a close look at how we define "secure" investments.  More millionaires have been made in real estate than all other industries combined!  It's a tangible asset which meets a basic need of . . . well . . . everyone.  In my books you can't beat that for security.

With some basic education in property management and the right property selection being a landlord can be a relatively hassle free task.  Of course this begs the question:  What if I bought two?

What your bank won't tell you about Collateral Mortgages

The term Collateral Damage wasn't coined with mortgages in mind but it could have been.  Collateral mortgages are becoming a trend with some lenders (mostly big banks) in an effort to restrict their clients ability to go to other institutions for their lending needs. A collateral mortgage is very similar to a traditional mortgage except that it allows 125% of the appraised value to be registered on title.  The benefit touted by the banks is that when the property has appreciated then you will be able to access more of your equity without the legal expenses involved in re-registering the mortgage.  The down side is that you are now limited to one institution which may not offer what you want or need. Say for instance that you fall on hard times and require a second mortgage, or a Line of Credit?  Won't happen unless your bank has the product and rate you're looking for. What about transferring your mortgage to another company at renewal?  Very unlikely. Even TD which offers collateral mortgages won't accept them from another lender so whatever rate they offer you is what you're going to get unless you want to break the whole mortgage and pay the legal fees again.

Are collateral mortgages bad?  No.  They are what they are, but you should know what the consequences are before you sign one.  Ask your mortgage professional about it.