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How to Qualify for a Mortgage in Retirement

Mortgage rates are the lowest they have been in years. It may seem like the right time to buy a new home. Being retired, you may be concerned that you don’t have the time or the finances to cover the cost of a mortgage. Rest assured, there are many mortgage options during retirement that allow you to continue to enjoy your independence without worrying about jeopardizing your financial future. 

So how do you qualify for a mortgage when you are retired? 

Getting Approved and Qualifying For A Mortgage

Getting approved for a mortgage when you are retired is different than for first-time homebuyers. Now that you are retired, your financial situation is unique. You may have a more limited income or if you have been carefully saving, you may have assets that you can work with to bolster your credit rating. 

A trusted mortgage broker like the team at the Mortgage Broker Store can provide you with many loan options. They will look at your overall financial health to determine what type of mortgage rate you qualify for and how much debt you can afford to take on. 

  • Income – How much you make in a year from employment if you are still working in any capacity as well as additional income including your Canada Pension Plan (CPP), Old Age Security (OAS) and Registered Savings Plan (RSP) or Registered Income Fund (RIF)
  • Investment Portfolio – Investments including stocks, bonds, investment assets and losses such as income properties.
  • Housing costs – Your housing costs should not exceed 39% of your income. 

The lender will take all the above information and determine your debt to income ratio. Your obligations should not exceed 44% of your gross annual income. This important information will also help determine the down payment required on your new home. 

If the lender determines that you are high risk, such as having a low credit score or bad credit you may be asked to make a larger down payment or liquidate certain assets to free up cash. 

What kind of credit score should you have? 

  • Canada’s major banks need a credit score of 600+
  • Trust companies require a credit score of 550+
  • Private lenders can lend regardless of credit score

In the case of bad credit or a low score, the lender will consider the equity in the property and assess the overall risk using the Loan to Value (LTV) to determine if the existing mortgage value divided by the market value is worth the risk. They may also offer a registered mortgage rather than a traditional mortgage, allowing the lender to sell the property to recoup their fees. 

Should You Carry Your Mortgage Into Retirement?

Long-range planning is important when taking on any new debt. This is why many retired homeowners choose to use a home equity loan https://mortgagebrokerstore.com/home-equity-loans-ontario which gives the home buyer more flexibility and the lender more security. Homeowners can access the equity of up to 55% of the home’s value. 

A home equity loan is any loan that uses home equity as collateral. A mortgage is also a kind of home equity loan.These loans have an interest rate of 7% to 15%. The mortgage can be ended at any time, with a three-month interest penalty fee. This gives borrowers more peace of mind in the event there is a significant change in their living or financial situation. 

5 Things To Consider When Retiring With A Mortgage In Canada

Taking on a mortgage in your retirement requires a lot of thought and planning. Before purchasing a new home, it’s important to take several important things into consideration to ensure you can afford to take on this investment. 

  1. Financial Situation – Before beginning the mortgage process, it can be helpful to review your personal financial situation to determine if there is anything that might hold you back. Do you have the resources to pay a mortgage? Are you making enough income to cover the monthly mortgage payments? 
  2. Type of Mortgage – Your financial situation will determine the right mortgage for you. Whether you go with a traditional mortgage or a home equity loan, it’s important to evaluate the financial impact of both such as interest rates and payback times. 
  3. Extra Expenses – Buying a new home is more than taking on a mortgage. There are real estate fees, legal fees and possible upgrade expenses to consider. When budgeting for your new home purchases, make sure to factor in the expenses over and above the sale price as this will determine whether or not you can really afford a new mortgage.
  4. Debt Repayment – Just because you have been approved for a mortgage, doesn’t mean it’s time to stop worrying about finances. Talk to your financial advisor about how you can maintain your financial stability as you take on a mortgage and know your refinancing options. 
  5. The Future – What does the purchase of a new home mean for your future? How long do you see yourself living in the home? Can you maintain the upkeep of the home over time? There are many personal and financial factors that affect long-range planning. Taking the time to look at the big picture will help you determine if now is the right time to take on a mortgage. 

Buying a home in retirement can be a great investment for you and your family if done right. Take the time to plan and speak to a mortgage broker who will work with you every step of the way. Solid advice paired with the resources and knowledge to make an informed decision will allow you to make your new dream home a reality. 

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