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Home equity loans for seniors

Home equity loans for seniors 

When in retirement, there may be some questions about finding another source of financing outside of your pension payments. What many homeowner retirees don’t realize is that they can access home equity loan for seniors and utilize the equity in their home in the form of a loan. If you’ve been paying the mortgage for several years, there is a high likelihood you have substantial equity in your home that could be accessed as a loan.

A couple talking to their mortgage agent

What are home equity loans? 

Before going deeper into home equity loans, it’s essential to understand the concept of equity. As you continue to pay your mortgage, you naturally build the equity in your home as you pay down the outstanding balance. You can calculate the value of your property equity by subtracting your outstanding mortgage from the appraised value of your house.

More specifically, home equity loans are based on the current value of your home minus your outstanding mortgage. If you have a home valued at $500,000 and your outstanding mortgage is $200,000, most lenders will lend up to a maximum of 75% of that amount.  This means that your maximum loan amount could be as much as $175,000.  

Home equity loans are also secured loans, meaning that your property acts as collateral. As a result, interest rates can be lower than regular personal loans which often have no collateral. 

Benefits of home equity loans for seniors 

Canadians who are already retired can experience many advantages if they decide to get a home equity loan.

If you still have outstanding balances to fulfill, you can manage them more effectively by borrowing a home equity loan. They have comparatively lower interest rates than multiple credit cards, allowing you to save. 

One of the more common solutions to finance home renovation is to put the money towards home improvements. For retirees, making the home more accessible by putting ramps or handrails can improve their living quality. Not only that, but certain changes to the house can also be reimbursed by the government.

Even in retirement, it’s not too late to start a new business venture. Since home equity loans can be high in value, you can use it towards establishing a new business or providing support to a family member’s business.

You can provide a down payment for another piece of property with a home equity loan. Many retired Canadians choose to buy a vacation home or another house for their descendants.

Retirees are more than welcome to use the funding in other ways. The beauty of home equity loans is that they are flexible in how they are used. Some may use the loan to support family members or just as a supplement to pension payments.  

A young woman reading her application

Eligibility for a home equity loan 

Retired homeowners can get a home equity loan from both traditional and alternative lenders. Each institution has their own set of criteria, but banks are known to have higher standards than alternative lenders; these may include a proof of employment income. Part of finding the right home equity loan is looking for a lender that can accommodate you in your specific financial situation.   

Traditional lenders

When getting a home equity loan with major financial institutions, you’ll need to provide information about multiple aspects of your finances. You may be asked to provide 

The bank prefers to give loans to people who have a strong credit score. To get a home equity loan, banks prefer that you have a score of at least 680.

Financial institutions might ask to see how well you’ve managed your finances in the past. They’ll also see what you’re currently paying towards.

Another aspect that banks will want to see is a DTI ratio that’s under 40%. The lower the percentage, the better it is for your home equity loan application.  

Conclusion: seniors and home equity loans with Alpine Credits 

Home equity loans provide new financial opportunities for anyone, including Canadians who are already retired. Not only can you use it to support yourself along with your pension, but you can use the money to improve your house or acquire another property.  

Contact a member of the team of Financial Solutions Specialists at Alpine Credits to learn more about home equity loans. They’ll be able to answer all your questions and help you determine the right solution for your finances. Your age nor your financial status play a role in the approval process for a loan.  

Frequently asked questions

If you’re receiving pension payments, home equity loans are not likely to have any effect on them. Pension payments rely on your retirement status and your contribution to the Canadian Pension Plan (CPP). 

Many pensioners also investigate reverse mortgages if they wish to have another funding option outside of home equity loans. Reverse mortgages allow you to have full access to your equity as cash without having to repay.

You can indeed borrow against your property for retirement. A popular source of additional funding for an individual’s retirement is from their home equity. Getting a home equity loan adds a layer of financial security to some retirees who may feel that their pension isn’t enough.

Both home equity loans and reverse mortgages are concepts based on the equity that you have built in your home. The main difference is that home equity loans act similarly to regular loans, in which you’ll have to repay the initial plus the interest in a specified amount of time.