The big question
You’ve spent 25 or 30 years paying off your mortgage. Your home is now your largest asset — possibly worth $500,000 to $1.5 million or more. Should you:
A) Stay in the house, live mortgage-free, and leave it to your heirs?
B) Sell, invest the equity, rent a smaller place, and use the income and capital for a better retirement?
There’s no universal answer, but laying out the numbers shows what the answer depends on.
The financial comparison
Scenario: $800,000 home, mortgage-free
Option A — Stay in the home
| Annual cost of owning (mortgage-free) | Amount |
|---|---|
| Property tax | $5,500 |
| Home insurance | $2,000 |
| Utilities | $4,200 |
| Maintenance (1.5% of value) | $12,000 |
| Major repair reserve | $3,000 |
| Total annual cost | $26,700 |
| Monthly equivalent | $2,225 |
Your home equity ($800,000) is illiquid — tied up in the walls. You can access it only through a HELOC, reverse mortgage, or selling.
Option B — Sell, invest proceeds, and rent
| Item | Amount |
|---|---|
| Sale price | $800,000 |
| Selling costs (5%) | −$40,000 |
| Net proceeds | $760,000 |
| Rental cost (2-bedroom apartment) | $26,400/year ($2,200/month) |
| Renter’s insurance | $300/year |
| Utilities (if not included) | $1,800/year |
| Total annual rental cost | $28,500 |
| Monthly equivalent | $2,375 |
Investment income from $760,000:
| Investment strategy | Annual return | Annual income |
|---|---|---|
| Conservative (GICs, bonds, 4%) | 4% | $30,400 |
| Balanced (60/40 portfolio, 5–6%) | 5.5% | $41,800 |
| Income-focused (dividends + bonds, 4.5%) | 4.5% | $34,200 |
At a 4% return, the invested proceeds generate $30,400/year before tax, enough to cover $28,500 in rental costs with $1,900 left over. The owner in Option A pays $26,700 a year to keep the house and gets no income from the $800,000 of equity, though the house itself may rise in value (see below).
20-year projection
Key assumptions
- Home appreciation: 3% a year, tax-free (principal residence).
- Ownership costs ($26,700 in year 1) rise 2% a year; the owner pays them from other income.
- Rental costs ($28,500 in year 1) rise 2.5% a year. The renter pays the extra cost of renting over owning ($1,800 in year 1) from the portfolio, so both households have the same other income to spend.
- Portfolio return: shown at 5% and at 4% a year, after any tax.
Net wealth after 20 years
| Year | Stay: home value | Stay: home value after 5% selling costs | Rent: portfolio at 5% | Rent: portfolio at 4% |
|---|---|---|---|---|
| 0 | $800,000 | $760,000 | $760,000 | $760,000 |
| 5 | $927,419 | $881,048 | $958,077 | $912,975 |
| 10 | $1,075,133 | $1,021,376 | $1,205,128 | $1,093,451 |
| 15 | $1,246,374 | $1,184,055 | $1,513,490 | $1,306,216 |
| 20 | $1,444,889 | $1,372,645 | $1,898,711 | $1,556,900 |
Each year, the portfolio grows by its return and pays the gap between rental and ownership costs: balance × (1 + return) − (28,500 × 1.025^year − 26,700 × 1.02^year), counting the first year as year 0.
What decides it: with the home rising 3% a year, the renter’s portfolio needs about 3.4% a year after tax to end up level with the owner’s net home value at year 20. Below that, staying builds more wealth; above it, selling does. Taxes matter: interest and most investment income outside a TFSA are taxed each year, while the home’s gain is tax-free. The renter also has the capital in liquid form throughout, while the owner’s wealth stays in the house until it is sold.
Tax implications
Selling your principal residence
- Capital gains tax: $0. The principal residence exemption eliminates tax on the gain.
- Report on your tax return: You still report the sale on Schedule 3 (and Form T2091), even though no tax is owed.
- Entire gain is sheltered — whether you made $200,000 or $800,000 on the property.
Investment income in retirement
Once you invest the proceeds, investment income is taxable:
| Income type | Tax treatment |
|---|---|
| GIC / bond interest | Fully taxable at your marginal rate |
| Canadian dividends | Eligible for the dividend tax credit, so taxed at lower rates than interest |
| Capital gains (from selling investments) | 50% inclusion rate — only half is taxable |
| Return of capital (some funds) | A return of capital isn't taxed in the year you receive it. It reduces the adjusted cost base (ACB) of your units. |
| TFSA withdrawals | Tax-free |
| RRSP/RRIF withdrawals | Fully taxable at marginal rate |
TFSA room: someone who has been eligible since 2009 and never contributed has $109,000 of room in 2026. Income earned inside a TFSA is tax-free, which helps the sell-and-rent option.
OAS clawback risk
Investment income from non-registered accounts may push your income above the OAS clawback threshold: $93,454 of 2025 income, which sets the recovery tax for July 2026 to June 2027. For every dollar above the threshold, you repay 15 cents of OAS.
| 2025 net income | OAS clawback (monthly) |
|---|---|
| Up to $93,454 | $0 |
| $100,000 | $82/month |
| $120,000 | $332/month |
| $152,062+ (age 65–74) | Full OAS clawed back |
Each row: (income − threshold) × 15% ÷ 12.
The investment structure (TFSA room, capital gains versus interest, the timing of RRIF withdrawals) affects how much clawback applies.
Lifestyle considerations
Advantages of selling and renting
| Benefit | Details |
|---|---|
| Freedom from maintenance | No more roof repairs, furnace breakdowns, or lawn care |
| Downsizing flexibility | Rent a smaller space that fits your actual needs |
| Geographic freedom | Move to a new city, live near grandchildren, try a different lifestyle |
| Travel | Lock-and-leave — no house to worry about while travelling |
| Access to capital | $500K–$1M+ in liquid investments vs. illiquid home equity |
| Simplified finances | One monthly rent payment vs. property tax + insurance + maintenance + utilities |
Advantages of staying
| Benefit | Details |
|---|---|
| Stability and community | Your neighbourhood, your neighbours, your routines |
| No rent increases | Ownership costs rise slowly; rent can jump (especially in provinces without rent control) |
| Emotional comfort | Home is where you raised your family — attachment matters |
| Estate value | Home passes to heirs, potentially with significant appreciation |
| Inflation hedge | Real estate generally keeps pace with or exceeds inflation |
| Reverse mortgage option | Can access equity later without selling (reverse mortgages are available from age 55) |
Risk factors to consider
Risks of selling and renting
| Risk | Ways to manage it |
|---|---|
| Rent increases | Rent caps apply in some provinces (in Ontario, only to units first occupied on or before November 15, 2018) |
| Eviction (landlord’s own use, renoviction) | Provincial tenant rights; a budget for a possible move |
| Investment underperformance | A lower withdrawal rate; a cash reserve |
| Outliving your money | Planning to a late age; annuities for guaranteed income |
| Loss of estate value | A trade-off between inheritance and spending in retirement |
| Rent-to-income ratio rising | If rent rises faster than investment income, the math deteriorates over time |
Risks of staying
| Risk | Ways to manage it |
|---|---|
| Large unexpected repair | A home repair reserve |
| Accessibility needs | Modifications, or a later move |
| Isolation | Aging in a large house alone can be isolating |
| Cash-poor, house-rich | A HELOC or reverse mortgage can release equity |
| Property tax increases | Several provinces and municipalities offer seniors’ property tax deferral or relief |
Decision framework
Sell-and-rent tends to fit when:
- Your home equity is large relative to what a comparable rental costs.
- You are house-rich but cash-poor — struggling with day-to-day retirement income.
- Your home requires $20,000+ in deferred maintenance that you can’t afford.
- You want to travel extensively or live in multiple locations.
- You don’t have children who want to inherit the property.
- You live in a market where home values are high relative to rents (such as Toronto or Vancouver).
Staying tends to fit when:
- Local rent isn’t much cheaper than your ownership costs.
- You have sufficient retirement income without needing to access home equity.
- Your home is low-maintenance (condo, newer detached) with minimal upcoming capital costs.
- You have strong community ties and moving would harm your well-being.
- You want to leave the home to your heirs.
- Your province has limited rent control, making long-term rent costs unpredictable.
Alternatives to selling outright
| Option | How it works | Best for |
|---|---|---|
| Reverse mortgage | Borrow against equity; no payments until you sell, move out or pass away | Cash-flow needs without leaving home |
| HELOC | Draw equity as needed; interest-only payments allowed | Specific large expenses (renovations, medical) |
| Downsize to smaller owned home | Sell, buy cheaper, invest the difference | Want ownership benefits + freed-up capital |
| Rent out part of your home | Basement suite or room rental income | Offset costs while staying |
| Sale-leaseback | Sell your home to an investor, lease it back | Rare in Canada |
Related pages
Sources
The figures and rules on this page come from these sources, last checked against them between August 29, 2026 and October 1, 2026. How we check facts.
- BlackRock iShares: Tax Information Centre - Distributions & Tax FAQs | BlackRock Canada
- Canada Revenue Agency: MP, DB, RRSP, DPSP, ALDA, TFSA limits, YMPE and the YAMPE
- Canada Revenue Agency: Tax treatment of mutual funds
- Government of Canada: Old Age Security pension recovery tax
- Government of Ontario: Residential rent increases