82 Years Old with a 30 year Amortisation?

82 Years Old with a 30 year Amortisation?

Can an 82-year-old take out a new mortgage with a 30-year, or even a 35-year amortisation? Strictly speaking, YES.

In fact, in 2009 my then 82-year-old client did just that in order to invest the capital. With the net profits between the 2.25% mortgage rate enjoyed for that five years and the couple’s more significant investment returns, they were able to pay for a full-time careworker, which enabled my client to remain in their home of 40+ years.

It made perfect sense.

However… new federal lending policies have all but eliminated mortgage and secured line-of-credit options for retired individuals, at least those who are lacking pension income other than CPP and OAS.

Case in point is my current 72-year-old client who was lucky enough to have purchased in Westside Vancouver 40+ years ago. Said client is seeking a $100,000.00 line of credit and has been turned down by every chartered bank and most credit unions. Their profile?

·        60 years banking with the same institution (which turned her down)

·        Stellar credit score and zero debt

·        CPP, OAS, and $1600.00 basement suite monthly rental income

·        $2,750,000.00 home value – clear title!

·        $40,000.00 in liquid assets

Standard Lender Response; ‘CPP & OAS not applicable for income qualification, too much reliance on rental income. How will this client make payments?’

There was a time when all that was required was stellar credit, 35% equity, and confirmation of no income taxes owing to CRA – and one could quite easily qualify for a mortgage of up to $1,000,000.00 at AAA interest rates (not exceeding 65% of the value of the property).

That time is gone.

November of 2012 saw the introduction of the B20 guidelines for chartered banks, and by Spring 2013 the flood of ‘Equity’ applicants into the credit unions was so overwhelming that nearly all credit unions either collapsed completely or significantly limited their ‘equity lending’ programs.

The focus on line 150 documented income is intense, unrelenting, and unlikely to change anytime soon. Few lenders will consider OAS or CPP income, although a registered pension puts one in a pretty solid position.

The trickier crowd to accommodate are the self-made individuals who have sold their companies, have stellar credit, significant liquid assets, and many times clear title properties. All of that gets their toes right up to the finish line, but without any confirmable income, or at least ownership of an incorporated company, crossing that finish line and getting financing approved is far from a simple task.

Almost daily I am advising clients to forget this thing called logic, as it largely went out the window, along with reasonability and rationality, when it comes to mortgage approval.

These stringent guidelines were arguably a measure brought in to push business owners to increase their personal taxable income, thereby increasing tax revenues. The folks caught up in that effort, though, are largely the 65+ crowd that relied heavily on equity lending programs to allow them to stay longer in their homes, drawing funds out as required.

Be wary of the unintended consequences of best intentions.

Back to the opening question about whether lenders age-discriminate. Certainly not officially, as that would be a human rights issue. However there 101 other ways for a lender to decline a file from an applicant they are not comfortable with.

Ultimately solutions and options do still exist for all clients. The issue though is that they are often accompanied by a .50%  ̶  1.50% rate premium and on occasion a .50%  ̶  1.00% lender fee.

Documented income is vital. Confirmation of business ownership is helpful as well, second only to income.

Moral of the story: Get your financial ducks in a row before you retire or sell your company. Create access to the equity in your property before you need it.

This leads to questions around reverse mortgages, a topic I have been somewhat reticent to address, but with 10,000 people turning 65 per day in North America this will increasingly become an option worth understanding and investigating for many.

Watch for an upcoming post addressing both myths and sensitivities from the perspective of all parties involved in a reverse mortgage transaction, including an explanation as to why, even when it is the best option for a client, so many brokers (including myself) are often reluctant to suggest this option.  

Reluctance aside, it is all about the clients best interests!

Thank you

Dustan Woodhouse

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