Stress Test is Making Harder to Borrow in Retirement

Karen KesselAdvice, For Buyers, Planet Realty, Real Estate News, Retirement

The baby boomer segment of the population is beginning to witness a financial obstacle that may alter the plans of many retirees.

The federal government’s stress test is a financial bar that any Canadian must meet or exceed when attempting to borrow funds from a federally regulated main stream financial institution. The current threshold has been in place since 2018 and, by most standards, has actually been considered more lenient than it’s predecessors.

The current stress test sees a great deal of importance placed on income, as opposed to equity, when making a home purchase. Some retirees who require financing on a property may be surprised to know that a reduced income from retirement may disqualify one from loans they may have previously been qualified for. This means that someone who is recently retired, with a reduced income, may not qualify for a $250,000 mortgage even with a $200,000 down payment, for example.

Many people are shocked to learn that the amount they can borrow decreases drastically post-retirement. So how can one qualify for a mortgage later in life, while still enjoying the retirement they worked so hard for? This is a question some are beginning to ask themselves.

A certified lender is going to want to see consistent income, meaning an annuity or even a part-time job could really assist you in the mortgage qualification process. Otherwise, borrowers may need to consider accessing RRSP’s or other savings, though this is accompanied by tax implications that could make a mortgage look less appealing.

Of course, a big part of any solution is to plan ahead. Planning for retirement is the key to relaxation and freedom in your golden years. It is important to fully understand your financial position prior to retirement in order to properly prepare for the freedom you’ve earned. As is always the case, you should consult with an expert prior to major financial decisions.

Our team of Realtors® at Planet Realty are fully equipped to assist you in providing advice necessary to successfully transition into the next chapter of your life. Give us a call today at 519-837-0900 for a free consultation and home value estimate. We specialize in adult lifestyle communities, downsizing, and condo living in Guelph, and are committed to providing you with the retirement of your dreams.

Commentary based off article from The Toronto Star, Retired? No mortgage for you: How the stress test is making it tougher to borrow later in life, by Tracy Hanes