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As you enter your Golden Years, the last thing you may want to think about is taking out a loan. But depending on your financial situation as you enter retirement, you may want to supplement your income or access a chunk of money to cover a big expense.

In either case, you could use your home equity to get your hands on some extra cash. In fact, there are several interesting ways you can tap into your home equity to borrow money. 

What Types Of Home Equity Loans Are Available To Seniors?

As a senior, there are a few ways you can tap into your home equity to borrow money:

Reverse Mortgages 

A reverse mortgage is a type of loan that allows you to access the equity in your home without having to sell it or refinance your mortgage. You can borrow up to 55% of your home’s current value, and loan repayments are not required until you sell your home, move out, or pass away. 

It should be noted that interest will continue to accrue. Further, you’ll have less equity in your home by the end of the loan term.    

What Are The Requirements For A Reverse Mortgage?  

  • Be at least 55 years old.
  • Own the property and live in it as your primary residence.

Home Equity Loans

A home equity loan allows you to borrow against your home’s equity. You can borrow up to 80% of your home’s current value, less the outstanding balance on your mortgage.

Home equity loans work like a typical loan whereby you are given a lump sum of money, and then are required to repay the loan via regular fixed installment payments over a set loan term.

This is a secured type of loan, which means it is backed by an asset. In this case, your home backs the loan. Because of this, a home equity loan is less risky for lenders, since they have an asset of value to sell and recoup their losses if you default on your loan. Thanks to this reduced risk, you may qualify for a lower interest rate compared to an unsecured loan.  

What Are The Requirements For A Home Equity Loan?  

  • Have at least 20% equity in your home.
  • Have a fair to good credit score.
  • Earn an adequate income.

HELOCs

A home equity line of credit (HELOC) is a type of revolving credit that allows you to borrow against your home’s equity. But rather than taking out a lump sum and making regular payments to pay it off, you can borrow from your HELOC as often as you like, up to a maximum credit limit. 

The maximum credit limit for a HELOC is 65% of the home’s value, which you can withdraw from as the need arises.

What Are The Requirements?  

  • Have at least 20% equity in your home
  • Have a fair to good credit score
  • Earn an adequate income 

HELOC Tips

Apply Before You Retire

As noted, you need a sufficient income to secure a HELOC. Once you retire, you’ll no longer have a regular employed income to show your lender. This could make it more difficult to get approved. 

Instead, apply before you retire so you still have an income to declare when applying.

Keep Your HELOC Balance To A Minimum

If you’re not careful, you could take on more debt than you can handle, especially as interest rates continue to rise. HELOCs are especially susceptible to rising rates. As such, try to keep your HELOC withdrawals conservative so you don’t wind up owning more than you can pay back. 

Understand The Risks Of Interest-Only Payments

You can keep your payments relatively low at the beginning of your HELOC with an interest-only draw period. However, the principal still remains. Once the draw period ends, you could see much higher monthly payments since both the interest and principal are required to be repaid. 

Further, if rates increase by the time the draw period ends, you could wind up paying a lot more in interest.

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Is There An Age Requirement For Home Equity Loans For Seniors?

No, home equity loans and HELOCs do not have age requirements. Instead, the criteria are based on things like income and credit score. Reverse mortgages, on the other hand, have a minimum age requirement of 55 years.

Where Can You Get A HELOC With No Age Requirements?

There are no age requirements for a HELOC. However, if you are a retired senior with no employed income, you could have a harder time getting approved. 

Your bank will likely have a problem if your income has changed or been reduced following retirement. Given this, you may want to work with a mortgage broker who will approach dozens of lenders on your behalf to find one who is willing to work with someone with your particular financial profile. 

For instance, Mortgage Maestro can come up with a customized mortgage solution that’s best suited for you. You can borrow up to 65% of your home’s appraised value with a HELOC, and you’ll only need to pay interest on what you use. 

Mortgage Maestro will not only help you get approved, but they can also help you qualify for a lower interest rate. That’s because they get volume discounts from lenders across Canada. This can give you access to lower rates than what you may receive from your bank. So, if you’re a senior and don’t have the perfect profile for a home equity loan from a conventional lender, Mortgage Maestro is a great option.

Advantages Of Tapping Into Your Home Equity As A Senior

There are a few perks that home equity loans offer to seniors:

Supplemental Income

Most seniors who are homeowners have retired and are no longer earning an employed income. Instead, they’re either relying on their pension benefits, savings, or investment dividends. With a home equity loan, you can use the funds to supplement your income, especially if you’re finding that your current income isn’t quite enough to cover all of life’s expenses.

Old Age Security (OAS)Learn More
Canada Pension Plan Death BenefitLearn More
Pension Income SplittingLearn More
Pension AdjustmentLearn More

Lower Interest Rates

Home equity loans usually have lower interest rates than other loan types, such as personal loans. That’s because your loan is secured against your home. If you miss your loan payments, your lender can repossess and sell your home, which minimizes their risk. In exchange for this reduced risk, lenders are typically willing to offer lower rates. 

Larger Loan Amounts To Fund Renovations

Seniors may want to renovate their homes to make them more accessible, particularly if they have mobility issues. But home renovations are very expensive. Luckily, seniors who have accumulated enough equity in their homes can use it to cover a big expense like this without having to take out an expensive personal loan.  

What Happens If You Die Before You Pay Your Home Equity Loan?

It’s a common question asked about debt, both among borrowers themselves and their family members. What will happen to your loan if you die before it’s paid off?

Reverse Mortgage 

As noted earlier, a reverse mortgage allows homeowners to cash out their home equity without having to make monthly payments. However, repayments will be required in certain instances, including when the owner (or the last named owner on the title) passes away. In the event of your death, the creditor will look to your estate for repayment of your reverse mortgage. 

HELOC

Your lender will take steps to repossess your home after you pass away to repay your HELOC. However, if someone else is named on your loan contract, the lender may require that individual to take over the debt repayment. That said, if no one else is named in the loan agreement and the value of your estate is not high enough to pay off your HELOC after you pass away, your debt dies with you and won’t be passed onto your family members. 

Home Equity Loan 

Like a HELOC, your creditor will take steps to seize your property to repay your debt. If that’s not enough, your estate will be used to pay back your creditors.

Final Thoughts On Home Equity Loans For Seniors

If you’re a senior who owns a home, you may be able to use your equity to cover big expenses or supplement your income. As long as you have enough equity, then a home equity loan may be just what you need to give you a financial boost.

Home Equity Loans For Seniors FAQs

Can a home equity loan affect my pension payments?

No, your pension benefits will not be affected when you take out a home equity loan. Even if you fall behind on your loan payments, your benefits are protected. However, your home will be at risk of repossession if you default.

Can I borrow against my house for retirement?

Yes, if you have enough equity in your home, you can use it to fund a variety of big expenses while in retirement. Or, you could use your equity to supplement your retirement income or pension.

What is a readvanceable mortgage?

A readvanceable mortgage is HELOC that is combined with a mortgage. In this case, you’re only required to pay interest on the funds borrowed for the HELOC, but will not have to make any fixed repayments.  However, you will have to make payments on the fixed term mortgage. As the principal portion of your mortgage is paid down, the credit limit on your HELOC will increase.
Lisa Rennie avatar on Loans Canada
Lisa Rennie

Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

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