What Factors Into My Personal Mortgage Rate In Canada
Factors such as credit score and income play a big part in qualifying for the lowest interest rate. The riskier a borrower appears, the higher the interest rate can be. Rate is definitely not the most important aspect of a mortgage, however, as many rock-bottom rates often come from no-frills mortgage products. In other words, even if a borrower qualifies for the lowest rate, they must often give up other features such as prepayments and porting privileges when opting for the lowest-rate product.
There are many other ways to save money over the mortgage term instead of taking the lowest rate, including rounding up mortgage payments or making lumpsum payments when bonuses, etc are received throughout the year. Its important, however, not to exceed the allowable limit on annual extra payments with your lender.
Can You Get A Mortgage As A Senior
When it comes to getting a home loan in retirement, mortgage lenders look at a lot of numbers to decide whether a borrower is qualified but age isnt one of them. The Equal Credit Opportunity Act makes it unlawful to discriminate against a credit applicant because of age.
I once did a 30-year mortgage for a 97-year-old woman, recalls Michael Becker, branch manager and loan originator at Sierra Pacific Mortgage in Lutherville, Maryland. She was lucid, understood what she was doing and just wanted to help out a family member some cash out of her home, and had the income to qualify and the equity in the home she owned it free and clear so she was approved.
When seniors apply for a mortgage, lenders look at the same criteria as they do for any other borrower, including:
- Debt-to-income ratio
- Income and other assets
The minimum credit score to get a conventional loan backed by Fannie Mae or Freddie Mac is 620, although that score wont qualify you for the best rates. Check your credit score before applying for a loan you can do so for free each week until the end of 2023 by visiting annualcreditreport.com.
Youll also want to calculate your DTI using this formula:
DTI = monthly debt payments / monthly gross income
A DTI ratio as high as 50 percent might be allowed, but lenders prefer to see you spending less than 45 percent of your monthly income on debt payments, including your mortgage.
Is Buying A House At 65 Years Old A Good Investment
Buying a house is a large investment, no matter how old you are. If youre considering buying a house at 65 years old, you should first look at your financial portfolio and perhaps even speak with a financial advisor to determine whether an investment of this size makes sense for you.
Should you buy term life insurance over the age of 70?
The policies dont build any cash value, and if you outlive your policy, you wont receive the payout. Although the premiums are low, buying term life insurance over the age of 70 may not be the safest choice. * Estimated rates do not reflect the rates of any particular life insurance company.
Is final expense insurance a good option for seniors in their 70s?
Final expense insurance, also known as burial or funeral insurance, is a great option for seniors in their 70s. Burial insurance for seniors has much lower premiums than many other types of life insurance, and rather than taking a health test, you only need to answer a few simple health questions on the application.
Read Also: What Can My Mortgage Be
Should I Choose A Traditional Mortgage Or A Home Equity Line Of Credit Or A Reverse Mortgage
After explaining that a retired person can qualify for a home and going over the details like I have here. The next question revolves around the options.
You have all the options and choices that an employed person would have, plus one extra. You can set up a traditional mortgage with principle and interest payments. You can set up a home equity line of credit. You can set up a second mortgage.
If you have bad credit, you can set up a mortgage through an alternate lender who is more flexible regarding credit. In addition to all of these, you can also set up a reverse mortgage.
I explain how reverse mortgages work, in much more detail, in another article on this site. Click here to read this article, “How does a reverse mortgage work?“
Once you turn 55, you can qualify for a reverse mortgage. Two lenders in Canada offer Reverse Mortgages. The amount of the mortgage is calculated based on the equity in your home, your location, and your age. The lenders give more “weight” to your home than to your income or credit.
You can access the equity in your home up to 55% of your home’s value. You do not have to make minimum payments. You do not have to pay it back until your home is sold.
How Does The Lender Get Their Money Back
When a lender sets up a mortgage for a retired person, a senior or anyone. The first thing they receive are the principle and interest payments. Eventually, the home will be sold and the full mortgage balance will be paid off.
A lender doesn’t necessarily want you to pay off the mortgage. They are in the business of making a return on the money they lend out.
When a retired person gets a mortgage, the lender will receive the mortgage payments . Or, in the case of a home equity line of credit, interest only. The lender has the home as collateral. They are happy to receive a monthly income in the form or interest.
A retired person could pay off the mortgage by selling the home. A retired person could pay off the home with cash if they have it.
If you are retired and live in your home until you pass away and still have a mortgage, then your estate will make the payments on the mortgage until the home is sold. Either way, the bank will eventually receive their money back.
You May Like: How Many Co Signers Can Be On A Mortgage
Getting Approved For A Mortgage
Considering most mortgages last for 25 years, it isn’t just people nearing retirement who may find it a bit harder to get a mortgage.
People getting mortgages in their early 40s could be affected, and as the age of first-time buyers rises that is increasingly likely.
According to by building society The Nottingham, 37% of mortgage applicants over 40 struggle to be approved.
What Mortgage Options Are Available For Over 70s
There are several different mortgages available if youre over the age of 70. Which mortgage type is best for you will depend on your attitude to risk and the reasons you want a mortgage, such as:
-
To improve your existing property
-
To release cash tied up in your home to give you some additional income in retirement
Below are the four main mortgage options you can choose from.
Don’t Miss: How Much Do I Need For A Mortgage
Senior Home Buying Example: Qualifying For An Asset Depletion Loan
As an example, suppose retiree Michael has $1 million in his 401, and he has not touched it.
- Michael is not yet 70½, the age at which the IRS requires account owners to start taking required minimum distributions from 401s
- He is living off Social Security income, along with income from a Roth IRA
- To qualify Michael for a mortgage, the lender uses 70% of the 401 balance, or $700,000, minus his down payment and closing costs
Note: Fannie Mae also allows borrowers to use vested assets from retirement accounts for the down payment, closing costs, and cash reserves.
Lets say that after down payment and closing costs, Michael is left with $630,000.
Assuming a 30-year mortgage, that amount of $630,000 can then be used to gradually pay for his mortgage over the next 360 months. That would give him $1,750 a month to put toward a housing payment.
- Amount in 401 = $1,000,000
- Qualifying 401 funds = $700,000
- Funds left after down payment and closing costs = $630,000
- Monthly mortgage budget = $1,750
Though it is not a separate loan type, lenders sometimes call this an asset depletion loan or asset based loan. And borrowers may still count income from other sources when they use assets to help them qualify.
Michael could use the asset depletion method from his untouched 401 combined with the income he is already receiving from Social Security benefits and his Roth IRA to qualify and borrow as much as possible.
Property Tax Breaks For Seniors
One final thing to consider as a senior homeowner is that you may qualify for a property tax break.
Rules to claim your senior property tax exemption and the amount your taxes could be reduced varies by state. So check with your local tax authority or financial planner for more information.
If you do qualify for reduced real estate taxes, this could help lower your debt-to-income ratio and therefore increase the amount you can borrow on your new home loan.
Keep in mind, even if you do qualify for tax breaks, taxes will be calculated at the current tax rate in the local area, says Jon Meyer, The Mortgage Reports loan expert and licensed MLO.
Also Check: How Do I Apply For A Mortgage
What Is The Maximum Amortization I Can Choose
The maximum amortization that you will receive is not calculated based on your age. Lenders have specific legislation that covers the maximum amortization that can be offered. For a home purchase with a down payment of less than 20%, the maximum amortization is 25 years.
If you are retired and purchase a home with 5% down, which you can certainly do if you have the income to qualify, then your maximum amortization is 25 years.
If you are retired and purchase a home with 20% down or more, then you could have a mortgage amortized up to 30 years. No matter your age, provided you have the income to qualify for the mortgage, your maximum amortization would be 30 years.
With 35% down, you could choose a mortgage or a home equity line of credit. The mortgage has a maximum amortization of 30 years, as before. However, if you set up a home equity line of credit, the minimum payment is interest only.
With a home equity line of credit, you have no amortization. It’s effectively infinity! If you made the minimum payments of interest only then you will never pay that line of credit off!
That begs the question…
How Often Do Mortgage Rates Change
Variable rates follow lender prime rates, which are set based on the Bank of Canadas benchmark rate. The BoC meets eight times a year and can announce a change to its target rate during any of these meeting dates.
Fixed rates are based on the bond market and can fluctuate more regularly, although you pay the same amount throughout your set term.
Recommended Reading: What Are The Drawbacks Of A Reverse Mortgage
When Does It Make Sense To Get A Home Loan As A Senior
Many retirees and seniors are opting to have a mortgage instead of paying off their loan balance or buying a new home with cash.
This can free up savings for other uses. Necessities such as food, transportation, and long-term care are among the highest expenditures for seniors.
Other than freeing up assets, there are a number of reasons seniors may be considering financing a new home purchase.
- Sizing down: Empty nesters may size down to minimize square footage, maintenance, and mortgage costs
- Physical challenges: Cleaning and repairs can become physically taxing. Many seniors purchase a new home to cut down on upkeep
- Supplementing fixed income: More and more senior citizens are finding it difficult to live on their fixed incomes. Retirees may decide to sell or refinance their homes, finance a new home purchase, and use the equity cashed out to supplement their income
- Moving to a new area: According to one survey, as many as 40% of retirees are venturing out of their home state looking for better weather, recreation, favorable taxes, and other benefits
If any of the above applies to you, it might be worth it to consider financing a home in retirement.
Buying A House At 65 Years Old: Major Pros And Cons
Is 65 too old to buy a house? | Buy vs rent | Financing a home in retirement| FAQs about buying a house at 65 years old
Buying a house is a large investment, no matter how old you are.
If you’re considering buying a house at 65 years old, you should first look at your financial portfolio and perhaps even speak with a financial advisor to determine whether an investment of this size makes sense for you.
Next, you should find an experienced realtor who knows the local market and can help you negotiate a winning offer on the perfect house for your retirement goals.
With an expert buyerâs agent at your side, thereâs nothing stopping you from finding the house of your dreams at any age.
Ready to find a great realtor? Clever offers a free, no-obligation service that matches you with top-rated agents from trusted brokerages like Berkshire Hathaway and Century 21. And, on eligible purchases, you could also get a cash-back refund of 0.5%that keeps more money in your pocket!
Don’t Miss: How Much House Is A 1200 Mortgage
Choosing Between A Mortgage Broker Vs A Mortgage Lender
A mortgage broker is a licensed professional who can negotiate the best mortgage by comparing all the offerings from multiple lenders, including banks, credit unions and trust companies, as well as alternative and private funding specialists. In other words, the mortgage broker acts as an intermediary between the borrower and the lender.
A mortgage lender is one financial institution that offers a single line of mortgage products direct to borrowers. The lenders mortgage specialists only have access to their own mortgage products.
As a lender, nesto makes less than the average broker or mortgage specialist, but we get the peace of mind knowing that we helped you save thousands of dollars on your mortgage.
Can I Get A Mortgage If I Am 75
You may be eligible for a mortgage at age 75, depending on which type of mortgage you want to take out, how long you want to take out the mortgage for and a number of other factors which are explained below. In fact, we can support borrowers from the age of 55 onwards who are looking at their options in retirement!
Also Check: Who Is In The Rocket Mortgage Commercial
Variable Mortgage Rates Vs Fixed Mortgage Rates
A variable-rate mortgage fluctuates with the nestos prime rate throughout your mortgage term. While your mortgage payment will remain the same throughout your term, your interest rate may change based on market conditions. So, if the prime rate rises or falls, this impacts the amount of principal you pay off each month. When rates on variable-rate mortgages drop, more of your payment is applied to your principal balance. And, conversely, if rates increase, more of your payment will go towards the interest portion of your mortgage.
A fixed-rate mortgage keeps your interest rate steady over the term of your mortgage. Historically, variable rates have paid off for Canadians over time, as a variable-rate mortgage often allows you to take advantage of lower rates as the interest rate is calculated on an ongoing basis at a lenders prime rate minus a set percentage. Still, many conservative borrowers would rather pay more for the security of a fixed rate option than have to worry about the fluctuation of a variate rate alternative.
Theres no doubt that the five-year fixed-rate mortgage is the most common choice selected by Canadian homeowners. But, this isnt the best option for everyone, regardless of its popularity. Your decision should be based on your tolerance for risk as well as your ability to withstand increases in mortgage payments. This is where our expert support is even more invaluable.
Does It Make Sense To Get A 30
A view of the Trump Tower on 5th Avenue in New York. Photo by Timothy A. Clary/AFP/Getty Images.
Paul Solman frequently answers questions from the NewsHour audience on business and economic news on his Making Sen$e page. Fridays query comes from a reader at Next Avenue. The NewsHour has partnered with Next Avenue, a new PBS website that offers articles, blogs and other critical information for adults over 50.
Can a 66 year old retired man with a retirement income of $52,000 get a 30 year fixed rate mortgage? If yes, does it make financial sense to do this?Jim Raymond
Paul Solman: Hi, Jim. Please forgive the rant that went up first thing this morning on Making Sen$e and the Rundown, and is reprinted below. I simply didnt understand the thrust of your question.
You mean, I think: if someone is already 66, does it make sense to take out a loan that will only be paid off when s/hes 96? And will a lender say: Forget it. He wont live long enough.
Dont worry about the lender. A standard rule of thumb applies, regardless of age: So long as your mortgage payments are no more than 45 percent of your gross income, you should be able to get the mortgage. And since Social Security and pension income the latter up to the federal guarantee limit of $4653.41 a month for 2012 are as close as you can get to a sure thing these days, the lender should be more reassured than with regular income, which can end abruptly at any moment.
Don’t Miss: Can You Add Someone On Your Mortgage
