Mortgage Refinancing For Pensioners
Refinancing Your Home Investment in BC means that you are simply replacing your existing mortgage with a new mortgage on different terms. There are three options to refinancing, a traditional mortgage, Home Equity Line of Credit (HELOC), and a second mortgage or reverse mortgage. To find out if you qualify, your lender will calculate your “loan to value” ratio by dividing the balance owing on your mortgage and any other debts secured by your property into the current value of your property. If your “loan to value” ratio is 80% or under, you will most likely be approved.
There are many rules and requirements to refinancing your home. Understanding those rules and requirements will help further your knowledge on what mortgage you should follow through with when it comes to refinancing. You must have at least 20% equity in your home, understand your credit score and current debts, and submit your loan application and get approved. The following will help with your decision, when it comes to choosing one of the three options:
- Have a rough idea of what you’ll be needing this loan for
- Home renovations
- Consolidated your consumer debts
- Heritage Planning
- Future investments
It’s important to know what’s all needed for when it comes to the costs that will be required for your refinance. Once the previous steps have been completed and you have a rough idea of what you’re wanting to use this loan for, you’ll need to have the following costs calculated for refinancing:
- Appraisal costs
- Legal costs
- Title search fees
- Title insurance fees
When qualifying for a refinance, looking at the income/debt’s ratio, no more than 39% of income can go to mortgage payment and property taxes (Gross Debt Servicing | GDS) and no more than 44% of income can go to mortgage payment, property taxes and all other debts (Total Debt Servicing | TDS).
If you’re retired and wanting to use pension for refinancing, you may have less options because pension income can be less than working income, this can make qualifying for a traditional mortgage a bit more difficult, so when getting a mortgage, you can use the following options of pension:
- Survivor Benefit
- Canada Pension Plan (CPP)
- Old Age Security (OAS)
- Work Pension
Case Study
Looking at an example of what can be done for a retired couple, when having the following:
A retired couple is looking to refinance to access equity and pay for an unforeseen home renovation project
Let’s look at the possibility of qualifying…
INCOME
Client A receives $20,000/year in pension income – between CPP and Work Pension
Client B receives $20,000/year in pension income – between CPP and Survivor Benefit and Old Age Security
Together, there is a household income of $40.000/year
DEBTS
The couple has no debts
MORTGAGE
The clients NEED $25,000.00 for home renovations
The clients have an existing mortgage of $145,000
QUALIFYING
After assessing income to debt ratios – this client will qualify to access $55,000 of the equity within the home
Those who cannot income qualify, due to low pension income, a feasible option can be a reverse mortgage. A broker will be able to provide more information.
It is VERY important to have a clear understanding of the implications when it comes to working on getting a mortgage when retired. It makes all the difference in future planning and can impact you in very significant ways.
At GLM Mortgage Group | Dominion Lending Centres, we know what questions to ask. We have relationships with the lenders that you know about and the lenders you don’t. We would be pleased to educate you on the financial options available to you. We want you to make the best decision possible on the mortgage that you are committing to. Call us anytime for a FREE consultation on the mortgage products available to you.
