Among homeowners in Canada that are 65 years or older, roughly 35% have a mortgage. Out of those individuals, the average loan-to-value ratio is 33% according to Mortgage Professionals Canada. In this month’s story, we’re comparing and contrasting the situations of two single retirees with a retired couple to see how their incomes and assets affected their ability to buy their next homes.
First up is John, a single gentleman living in the nation’s capital who worked in the private sector for most of his career before retiring at age 65. He’s amassed several properties throughout the years and is the owner of his own home as well as two rental properties. He also managed to save and invest a decent amount between his RRSP, GICs, and TFSAs. With the market being what it’s been, he has some pretty valuable equity in his properties and came to us looking to purchase a third rental property to help fund the rest of his retirement.
Alternatively, Doug and Donna are a couple looking to purchase their retirement dream home. Looking to downsize from their current spot, they had their eyes set on places that would make for the perfect home for the next chapter of their lives. Doug is a retired federal government employee with a decent pension, while Donna ran a small side business out of the house alongside being a work-from-home mom. Their combined income was primarily made up of Dave’s pension as well as both of their CPP and OAS since the pandemic forced the closure of Donna’s side business. They didn’t have a lot of cash or savings but did have substantial equity with a home worth close to one million dollars and very little debt.
We also have Stella who is in her 70s, retired, and living in their condo while owning another investment property with no mortgages. Stella only relies on her CPP and OAS and has very little in RRSPs with a few other investments here and there. Stella has also loaned money to her son but, since it’s private, that won’t affect our lending process. She is the creditor on the loan and gets paid every month but because it’s a private lending setup, it’s not considered additional income here — although it helps cover her expenses! Stella wanted to buy a cottage and called us looking for a mortgage since her bank wouldn’t.
The main challenge with John is that he really only had his CPP, OAS, and rental income as money to coming in to help qualify for a new mortgage. Not to mention that his rental properties still had mortgages on them as well. John’s monthly income wasn’t anything substantial but, that being said, his net worth was well over a million dollars. Unfortunately, with traditional financing, he would not qualify for purchase simply because he does not have enough coming in on a monthly basis to satisfy more traditional and institutional lenders.
For Doug and Donna, the challenge is that they had to buy before they could sell due to the aggressive market. Their goal was to be in their new home mortgage-free but they effectively had to risk owning two homes and having a larger mortgage for what was (hopefully) a short amount of time. Whereas with Stella, the challenge was once again that of being equity rich but savings and income poor (like many retirees). Stella’s solution lies in the equity in their properties but, similar to John, she doesn’t qualify to access that through traditional means.
We did have a solution for Stella in the form of a blanket mortgage across her multiple properties in order to supplement the cottage she was interested in. Unfortunately, it was too expensive and locked up all of her assets which she was not comfortable with. As a result, we weren’t able to get Stella set up in her humble cottage abode because there was no solution that was financially feasible.
Given that we have a variety of lenders at our fingertips, it allowed us to get creative with John’s file. We found his solution with a specific equity and net worth program offered by one of our ‘A lenders’. These lenders may have the strictest rules for qualifying but are usually to table the best deal when qualified. Since John could provide a 50% down payment, had adequate liquid assets, equity in his other properties, and specific cashable investments, he met the specific guidelines for one of our A lender programs and was able to buy his third rental property.
An A Lender is a finance company who can provide the cheapest possible loan solution for home buyers, usually a “Big 6” bank like Scotiabank, mortgage finance company like MCAP, or any lender who solely deals in mortgages.
Our solution for Doug and Donna was to qualify them for the most amount of mortgage they could get — based on their income and standard lending rules — in a product that left them with little to no cost to get out of. We refinanced their existing home which gave them the cash for their new one and they were able to buy it outright with no mortgage. This setup left them the necessary time to sell property, utilize the market, and get maximum value on the sale.
This story highlights how home buying for senior and retired individuals can vary greatly. We had three different cases, with different circumstances, and different outcomes. With Stella, we were able to work with her and propose solutions although we didn’t end up closing on a deal. In John’s case, his cash savings and assets were the linchpins to making his retirement investment dreams come true. While in Doug and Donna’s case, they had more income along with a large amount of equity in their home which allowed them to make their next move seamless and with lots of choices at their disposal… a very happy ending for our retired buyers!
Contact the Kyle Miller Mortgage Agent team so we can discuss what your mortgage solution can look like. Every situation is different and we can help navigate the lending process by helping you understand your best options!
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