Downsizing as a Retiree in Canada — Timing Your Purchase, Sale, and Mortgage Decision

Who this is for

Canadian homeowners aged 60-75 who own a paid-off or near-paid-off principal residence and are planning to sell and purchase a smaller property — weighing whether to carry a small mortgage or deploy sale proceeds as cash.

• OAS clawback (the 'recovery tax') begins at $90,997 of net income in 2025. A large RRIF withdrawal to fund a down payment or closing costs in a single year can trigger a 15-cent clawback per dollar above the threshold — effectively a 15% surtax on that income. Spreading large withdrawals across two calendar years, or using non-registered savings first, can preserve OAS.
• Bridge financing requires a firm sale agreement — not a conditional one. Retirees who waive conditions on a purchase before their sale is firm are exposed to carrying two properties if the sale falls through. In a softer market, this is a material risk worth pricing explicitly.
• If the new property is a condo with a monthly fee above $800-$1,000, lenders include 50% of the condo fee in the GDS calculation. A $1,200/month fee adds $600 to the monthly debt-service figure, which can meaningfully reduce qualifying mortgage size on a fixed-income file.
• Spousal income splitting on pension income (up to 50% of eligible pension income can be split with a spouse under the Pension Income Splitting rules) can increase combined qualifying income and reduce the marginal rate on RRIF withdrawals used to service a mortgage.
• Reverse mortgages (CHIP by HomeEquity Bank, Equitable Bank's PATH product) are an alternative for retirees who want to stay in a property or who purchase and want to eliminate monthly payments entirely. The rate premium is substantial — currently 6.5-7.5% — but no payments are required until sale or death. This is a distinct product from a conventional downsize mortgage and warrants separate analysis.
• In British Columbia, the Speculation and Vacancy Tax and Municipal Vacancy Tax apply to properties left vacant — relevant if there is a gap between sale and purchase where the retiree is temporarily renting.

• Waiving the financing condition on the purchase before the sale is firm — if the sale collapses, the retiree owns two properties and must fund the purchase from liquid assets or a HELOC that may not exist on a paid-off home. The consequence is forced RRIF withdrawals or a distressed sale.
• Underestimating transaction costs and arriving at closing short of funds — LTT, legal fees, moving, and condo status certificate costs routinely total $40,000-$55,000 in major markets. Retirees who budget only the purchase price delta find themselves liquidating investments at an inopportune time.
• Assuming pension and CPP/OAS income automatically qualifies at a bank branch — some branch underwriters apply conservative haircuts to RRIF income if it is not yet recurring or if the drawdown schedule is not documented. A broker with experience on retirement-income files will know which lenders accept the full gross amount.
• Ignoring the PRE designation decision when a cottage is also owned — failing to optimize the allocation between the principal residence and the cottage can result in unnecessary capital gains tax on the higher-appreciating property. This decision must be made before the sale closes, not after.
• Purchasing a pre-construction condo as a downsize vehicle without accounting for the occupancy-to-title gap — the retiree may need to fund two residences (the existing home and the condo during occupancy) for 12-24 months, a cash-flow strain that is not always modelled in advance.
• Carrying a mortgage without stress-testing the payment against a fixed income that does not grow — a $2,530 monthly payment that is manageable at 68 may become burdensome at 78 if health costs rise. Shorter amortizations (15-20 years) or accelerated prepayment schedules reduce this tail risk.

1. 01Model both the all-cash and 40-50% LTV mortgage scenarios side by side, using your actual marginal tax rate on investment income and the current 5-year fixed rate — the spread is narrow enough in 2025-2026 that the decision is not obvious and depends on your specific income mix.
2. 02Pull your last two NOAs and calculate your qualifying income using CPP, OAS, DB pension, and a normalized RRIF drawdown — run this through a GDS/TDS calculation at the stress-test rate (contract rate + 200 bps) before assuming you qualify for the mortgage size you want.
3. 03Confirm with your lender or broker that bridge financing is available to you before waiving conditions on a purchase — get the bridge commitment in writing, including the maximum bridge period and the rate.
4. 04Engage a tax advisor to review the PRE designation decision if you own a secondary property, and to model the RRIF withdrawal timing for any large cash needs at closing.
5. 05Request the status certificate (Ontario) or depreciation report (BC) for any condo under consideration before making an offer — review the reserve fund adequacy and any pending special assessments with your lawyer.
6. 06If the downsize timeline is 12-24 months out, begin decluttering and obtaining a pre-listing appraisal now — a realistic sale price estimate is the anchor for every downstream financial model.