Consider The Type Of Property
The type of property you want to finance may also impact your ability to qualify for a mortgage after retirement. For example, if youre planning to mortgage your primary residence where you spend most of the year, it will be easier to qualify for a loan.
Alternatively, a secondary homelike a summer housemay be more difficult to finance if you already have an existing mortgage on your primary home. In this type of situation, youll likely need to make a larger down payment and meet more stringent income and credit requirements.
What About Reverse Mortgages
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Home Equity Loan Or Helocs
Notably, the Tax Cuts and Jobs Act no longer allows the deduction of interest on home equity loans unless the money is used for home renovations. Another option, similar to a home equity loan, is a home equity line of credit .
Both are secured by the homeowners’ home. A home equity loan is a loan that gives the borrower an upfront lump sum that is paid back over a set period of time with a fixed interest rate and payment amount. A HELOC, on the other hand, is a credit line that can be used as needed. HELOCs usually have variable interest rates and the payments generally are not fixed.
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Can I Get A Mortgage When Working That Stretches Into Retirement
If youre looking to borrow on a mortgage term that runs past your expected retirement age, the process can vary from lender to lender, generally depending on how close to retirement you are.
Many lenders will state that those borrowing into retirement at all will be required to evidence how theyll afford the mortgage when working income ceases demanding pension projection statements and all sorts.
Others are less picky and so long as the mortgage is affordable using working income, and there is a solid plan to repay, then fewer documentation is required.
The cut off for whether more evidence and documentation is needed is often if the application is within 10 years of the expected retirement date .
Navigating New Mortgage Technology
If youre buying a home in retirement, odds are mortgage technology has changed since your last purchase.
Even though age isnt a factor in getting a mortgage, seniors may face other hurdles in getting a mortgage when theyre retired. Hill said that some seniors may feel overwhelmed by the application process due to the paperwork required and a lack of familiarity with the technology involved.
Now that most mortgage applications are online and very rarely are there opportunities to meet face to face, they are often on their own, Hill said. It is a challenge trying to navigate the new technology, so finding a patient and knowledgeable Realtor is very important for seniors.
Hill suggested that older homebuyers work with a real estate agent who specializes in working with their age group. She also recommended bringing younger family members into the process, including attending meetings with their real estate agents and lender. Trusted relatives can make sure they fully understand the process and the contracts before signing, and can also help out with any technology challenges, Hill said.
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What Are Retirement Mortgages
Retirement mortgages are home loans for retired borrowers that dont require proof of a job or standard income documents like pay stubs and W-2s. There is no age requirement for a home loan unless youre getting a reverse mortgage.
To get a reverse mortgage, also called a home equity conversion mortgage , youll need to be at least 62 years of age. With other types of retirement mortgages, you must prove youve reached the legal age to receive Social Security or other retirement income. However, lenders are prohibited from age discrimination based on the Equal Credit Opportunity Act.
When Paying Off Your Mortgage May Not Make Sense
- You have to withdraw money from tax-advantaged retirement plans such as your 403, 401 or IRA. This withdrawal would be considered a distribution by the IRS and could push you into a higher tax bracket.
- Withdrawing the funds puts your retirement savings at risk or forces you to make drastic changes in your lifestyle.
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How Does My Current Age Impact Getting A Mortgage On A Pension
Many lenders cap the age at application to a certain level, often 60-65. However, there are some who specialise in mortgages for older people with higher or indeed, no maximum age limit.
Older borrowers can be considered as carrying greater risk as they have a higher likelihood of falling ill. They may have a greater financial pressure to cover the cost of care or accessibility changes to their home, and lenders are consciously aware that, ethically, it may be more difficult to repossess a pensioners home if they fail to meet the payments.
The advisors we work with know which lenders will allow a mortgage on pension income, and those which have higher or no age limit. Make an enquiry to get started.
Will Bad Credit Affect My Application For A Mortgage With Pension Income
If youre looking to take out a mortgage using your pension but have bad credit, there are bad credit mortgages available, depending on your circumstances.
Fortunately, the advisors we work with offer an expert service for customers in your situation.
We provide in-depth training to each advisor who works with us, and only license the best to handle our customer enquiries.
Make an enquiry and well match you with someone shortly.
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Can I Get A Mortgage After I Retire
Yes, some lenders will let you:
Take out a mortgage after you have retired
Take out a mortgage that will not be paid off until after you have retired
You will need to prove that the income from your pension would be more than enough to cover the repayments on the mortgage. It is usually easier to do this if you are already retired because you can show how much you get each month.
If you have not retired yet, you will need to ask your pension provider to give confirmation of your:
Current pension pot value
Expected retirement income
You could also give proof that you will have an income from other investments like shares or property.
Freddie Mac Senior Home Buying Program
Similarly, Freddie Mac changed its lending guidelines to make it easier for borrowers to qualify for a mortgage when they have limited incomes but substantial assets.
The rule allows lenders to consider IRAs, 401s, lump sum retirement account distributions, and proceeds from the sale of a business to qualify for a mortgage.
Any IRA and 401 assets must be fully vested, and must be entirely accessible to the borrower, not subject to a withdrawal penalty, and not be currently used as a source of income.
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Traditional Mortgage Vs Equity Release
Traditional mainstream mortgages are possible to obtain with no maximum age, using 100% of the pension income, and certain lenders can consider loans up to 4-5x income, with certain adverse credit issues depending on your circumstances.
Equity release however, can offer many borrowers far more flexibility and greater scope, such as:
- No monthly repayments
- Borrowing with no income assessment
- Borrowing far larger loans if traditional mortgages arent affordable
- Borrowing with even more severe adverse credit
This is made possible as the loan released to the borrower already has the interest and charges added to it at the point of assessment, and these are recouped by the lender when they assume control of the property , and as such if done in this way, there is no risk to the lender of default, as there are no repayments for the borrower to make!
How Much Can You Borrow When Youre Over 50
The amount you could borrow depends more on your financial circumstances than your age, particularly if youre still years away from retirement. Lenders will consider your monthly income and outgoings, as well as how big a deposit you have.
If youre over 60, you may only be able to apply for shorter mortgage terms of 10-15 years, while over 70s who have retired may face even tighter restrictions. A shorter loan should be cheaper overall, but the monthly repayments are likely to be higher than a standard 25-year mortgage, so youll need to show you can comfortably afford to pay off the mortgage in a shorter time span. The amount you could borrow may be limited, and youll probably need a substantial deposit.
However, there are lenders who are flexible and will make a decision based on your personal circumstances, regardless of your age.
When comparing mortgage rates, its important to have an idea of what you can afford. Use our mortgage calculator to work out how much you might be able to borrow.
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What A Reverse Mortgage Costs
The cost of the loan depends on:
- how much you borrow
- how you take the amount you borrow
- the interest rate and fees
- how long you have the loan
Over time, your debt will grow and your equity will decrease .
See how much a reverse mortgage would cost over different time periods, such as 10 or 20 years.
Your lender or broker must go through reverse mortgage projections with you, showing the impact on your home equity over time. Get a copy of this to take away, and discuss it with your adviser. Ask questions if there’s anything you’re not sure about.
Frequently Asked Questions Answers Provided By Our Seniors Mortgage Lending Pro’s
Retiring with a Mortgage in Canada? Carrying a Mortgage into Retirement in Canada? – Its not as bad as some financial planners make it out to be!
It’s not as bad as you might think. With the cost of housing escalating out of affordability it might be cheaper to retire with a mortgage than renting a place to live.
While some financial experts recommend against retiring with any form of debts. Others suggest using a business case method to calculate the cost benefits of retiring with a mortgage.
Take the following example. Jane is 65 recently retired and has an income of $48,932.00 per year. Her home is worth $713,000 and she has no mortgage. Jane wants to travel the world while she is still healthy and needs about $20,000 per year for the 5 or 6 years. She easily qualified for a mortgage of $212,436 with a monthly payment of Principle and interest of $1280. Plus she still has an appreciating asset.
Certainly if you need access to the equity in your home a $150,000 to $250,000 mortgage repayment of principle and interest will carry for less than the cost of renting a 1 bedroom condo in downtown Toronto or Vancouver. If you have the income and can qualify why not take out a mortgage then stay in your own home. If you have income of $40,000 or higher you would qualify for a $150,000 mortgage loan with a monthly payment of $1000 much cheaper than renting else where. Plus you still own an appreciating asset.
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Determining Income For Retirees
Retirees assume that if they dont have a paycheck, they wont qualify for a mortgage, due to lack of income.
In reality, lenders have two methods, described below, that they can use to calculate income for a retiree who is drawing on their assets.
Drawdown From Retirement Method For retirees who are following a plan where they are now retired but may be delaying the start of Social Security or pension income, the most favorable option is doing to be using a drawdown on assets method of determining income. Heres how it works.
As long as the borrower is age 59 1/2, the lender can use recent withdrawals from retirement accounts as proof of income. For example, assume that recent bank statements show withdrawals of $4,500 per month from an IRA. . This $4,500 would be considered monthly income. Sometimes, the lender will need a letter from a financial planner or financial institution confirming these withdrawal amounts.
Asset-Depletion Method For retirees with a lot of invested assets, the asset-depletion method of determining income may work well. With this method, the lender starts with the current value of financial assets. Then they subtract any amount that will be used for the down payment and closing costs. They take 70% of the remainder and divide by 360 months.
Of course, any other sources of income, such as pension income, Social Security, or monthly annuity income, would also be counted in addition to income using the methods above.
Can You Get A 30
First, if you have the means, no age is too old to buy or refinance a house. The Equal Credit Opportunity Act prohibits lenders from blocking or discouraging anyone from a mortgage based on age.
If were basing eligibility on age alone, a 36yearold and a 66year old have the same chances of qualifying for a mortgage loan.
The qualifying criteria remain the same: income, assets, debts, and credit.
However, it can be tougher to meet those criteria in retirement especially when it comes to income.
Seniors should expect stricter scrutiny when applying for a mortgage loan. Youll likely have to provide extra documentation supporting your various income sources .
There may be more hoops to jump through. But if you have the cash to make payments, you should be able to qualify for a new home loan or refinance your current home.
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How Will I Repay A Retirement Interest
There are two parts to paying off a retirement interest-only mortgage. The interest and the outstanding capital.
During the term of the mortgage, youll make monthly payments to cover the cost of the interest on your loan.
The outstanding capital you still owe will be paid off when the house is sold, you die, or when you move into long-term care.
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…
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What An Equity Release Agreement Costs
It’s not a loan, so you don’t pay interest. Instead, you pay fees such as:
- an application fee
- periodic service fees, potentially deducted in advance from your home’s equity
- a fee to end the agreement
Get the fund to go through projections with you, showing the impact on your home equity over time. Get a copy of this to take away, and discuss it with your adviser. Ask questions if there’s anything you’re not sure about.
How Will Lenders Assess Me For A Pension Mortgage
Every lender is different in what they do and dont accept when it comes to a pension backed mortgage in retirement, and the good news is that there are several specialists happy to consider using a pension to pay off a mortgage under certain circumstances.
The key criteria lenders assess are:
- What type of mortgage are you looking for?
- Are you currently retired, or working but looking to borrow into retirement? If youre currently working, when will you retire?
- Your current age at the point of application
- Your age at the end of the mortgage term
- The type of pension income
- How long has the pension income been paid?
- Do you have any other income to support the application?
- Other standard criteria such as overall affordability, loan to value , credit history, and property type
To establish the best lender to suit your circumstances, make an enquiry and well match you with an expert who can discuss your options with you.
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