# Elderly couple, low income, need small mortgage with high equity.



## drpap (Nov 10, 2015)

There's an elderly couple residing in Quebec that I'm trying to help out and wanted some input from you guys and gals if you have any ideas.

It's an elderly couple with about 18k income currently, they are both about 6 months shy of 65, and due to health reasons need to move out of their current home into a smaller one-floor-bungalow type home (ie something with no stairs / easier to walk around / accessibility). 

They are looking at selling their current home and after various costs and paying off fees and whatnot, are looking at having around 270k from the disposition. The purchase price will most likely be around 300kish with fees, notary, welcome tax, and a small buffer, potentially looking at a 50k mortgage.

There are no other savings or spare cash currently, so the bank will most likely be the best bet. My question is, aside from someone (or myself) giving them or loaning them the cash, or having someone cosign (which is not an option for them) how likely will the banks give this couple a 50k mortgage given that the house purchase price will be around 300k giving it quite a bit of equity.

Will the income be the end-all for this endeavor, or are there ways still to squeeze a mortgage out, even with the low income? Are there any tips/tricks/suggestions as to specific things to inquire or specific banks/plans to look into?

When fiddling with online calculators, based on the income and property taxes/heating costs, etc, it seemed highly unlikely to hit that 50k mark. But when dropping those added costs lower, it seemed possible. To what extent are mortgage specialists flexible, if they've had years of history with the specific bank, or the high equity, etc. Is there any leniency anymore (I know it used to be so, but how about these days)?

The 300$ or so dollars monthly for the 50k mortgage wouldn't be the issue, as they live quite frugally, and at 65 should have another two pension incomes coming in, but the matter is getting the mortgage in the first place.

Any advice or help is greatly appreciated. Many thanks guys and gals.


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## Just a Guy (Mar 27, 2012)

With the equity in the house being so high, I'm sure there is some bank that would lend the money with no issues.

That being said, the real question should be...

Should they be buying the home in the first place?

They have no other savings at this point, I assume their income will be minimal, they are getting into a fairly expensive time of their lives medically speaking...chances are they are going to be forced to sell the home fairly quickly and rent just to get by.

If you buy a house, it generally takes about 7 years of ownership just the break even on the purchase price and associated fees (and that assumes no major repairs needed). 

They'd be better off selling the house, investing in something safe like gic, HISA, etc. And renting. Chances are they are bound for assisted living soon anyway. Home ownership sound like a bad idea in this case.


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## OnlyMyOpinion (Sep 1, 2013)

^+1. Very good points. 

Adding indebtedness at this point is heading in the wrong overall direction, esp with the limited resources they have. Are there any less expensive places that would work? How long could they reasonably expect to live in an owned house? Will renovations (washroom, bathtub...) be needed if wheelchairs become necessary? Try to have them at least look at and consider rental alternatives (incl seniors apts). What does monthly income using their home sale proceeds look like if they were renting instead? You mention 2 pension incomes at age 65 - do you mean QPP? Don't forget OAS and possibly GIS as well. 

Tough decisions to make, they are lucky they have someone willing and able to help them through it all.


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## NorthKC (Apr 1, 2013)

I agree with the above.

Banks generally don't like retirees as there's minimal opportunity for them to find part-time work to help make the payments should they fall behind. However, if they need to downsize their home due to medical reasons, can they maintain the new home? They may need to pay someone to help maintain the home and since they don't savings now, this could hurt them. It sounds like a Senior's Condo building is the way to go or at least a Senior's apartment building where help is close by.


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## AltaRed (Jun 8, 2009)

^+2 Without knowing how much their income will jump at 65 due to pensions and potentially GIS, we are all stabbing in the dark. Will it be $30k or $50k?

Regardless, if they insist on owning, they need to buy a strata arrangement to minimize the amount of self-inflicted maintenance and care needed to keep the property in good living order. If their health is limiting today, it is going to get much worse over the next 5 years. Our social circle is now in their 60's and 70's and it can/does deteriorate each year.


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## drpap (Nov 10, 2015)

Great points. Thank you for the responses thus far. To help add more information to the discussion. 

They are adamant about buying a house vs apartment/condo - I don't know regarding assisted living, but I don't think they'd do that either. It doesn't feel they've planned much earlier on in their life, but they are of the immigrant generation (Canadian citizens 40+ years though) where they will end up dying in their house. I have already discussed at great lengths selling their house, investing the money into something safe with dividends preferably for the extra income, and getting a rental instead. It doesn't seem like they would budge.

The income at 65 as discussed above will be around 30k, and yes, that is the entire pension package including things like QPP, OAS, GIS. Banks typically request the previous 2 years worth of income / Notice of Assessment, which shows 18k though. So a 50k mortgage would be no problem to pay (its around 300$/month without property taxes), but getting it is the issue at hand. 

The downsizing is mostly due to the size of the current home being too large (3 flights of stairs - one up, one semi down, one basement), as well as they still owe a mortgage on it around 130k. Once they sell, post fees and whatnot, they are looking at around 250-270 leftover and looking to buy something in the 300k range. That is where the 50k mortgage comes into play.

I was thinking that 50k for 300k house, that the collateral equity should be sufficient. But banks now look at income heavily. Aside from getting the loan from someone, or borrowing off their credit cards like mad (which is a big no-no), I'm just trying to see what the best play here is. 

I'm not sure what this strata arrangement is as suggested above, but I will look into this further indeed. As for assisted living, it is simply not up for discussion it seems, at least not in the forseeable future till they end up requiring it further down the line; and even then who knows. I don't know how much maintenance they will end up putting in the house, or if any at all, and if it will lose its value, but I don't think that really matters to them currently. I don't think they are looking at it as an investment, to sell down the line.

They are indeed tough decisions to be made, and any and all input is greatly appreciated. Thank you guys and gals, any further insight is very much appreciated still.

Edit: How much annually do you think they'd have to save up for house maintenance/repairs? Like 1-2% of the home value?


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## NorthKC (Apr 1, 2013)

Well, if they won't budge despite you making all the valid points, it seems that downsizing their house and planning to pay for maintenance is best for them in meantime.

Generally, the newer the house, about 1% of home value. Older home is roughly 2% mainly because that's when everything seems to break all at once (foundation, roof, plumbing, etc). Perhaps, if you show the breakdown of the maintenance, it might show what the new home will cost them? You should check out your local senior's association. They often have the handyman program for those who are low-income which your parents would qualify especially if they're getting GIS. This is how most low-income seniors in my town are able to stay in their home but are unable to maintain it. In most cases, they only have to pay for materials and very minimal labour (if at all). Check it out and good luck! Your parents are wonderful to have someone like you looking out for them


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## AltaRed (Jun 8, 2009)

By strata, I was suggesting they look into a 55+ development that has bungalows or semi-detached units in a condo/strata arrangement. There are several of these bungalow/semi type developments where I live that are maybe 1000 sq ft, e.g. 2 bedrooms, 1.5 baths (one floor). The joy of these developments is also the social aspect of fellow 55+ types. This couple needs to accept the reality that they have to downsize enough to buy this new property free and clear. 

You are right that banks are not (should not) lend them a mortgage based on $18k income. The only institutions that might give them a mortgage are the sub-prime lenders at a higher interest rate. Perhaps the Home Capital's of the world. The best suggestion would be to put them in touch with a mortgage broker who can possibly find a vendor, albeit with a higher interest rate. The reality of it is.... I would not enter into a mortgage with a mid-60's couple that currently only has $18k of income, going to perhaps $30k within the year. Health issues et al could result in a cash flow crisis and potential foreclosure proceedings.

OTOH, why not wait until they have secured their $30k income? They won't have NOAs to support that, but they will have their CPP/OAS/GIS documents to support that.

Added: "Sun Village" example of at least a dozen such developments in the Kelowna/West Kelowna areas https://www.realtor.ca/Residential/...0-Butt-Road-West-Kelowna-British-Columbia-V4T


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## OnlyMyOpinion (Sep 1, 2013)

Good summary. Their position is not surprising, but it is unfortunate if it eventually entails another move in a few years, or a lot of family support.

Living in your own paid for home is usually the most economic place to be as long as you are able to stay there safely, eat properly etc.
- I'm guessing that they will be able to borrow, they need to know how much their pension and other government program income will be, it is reliable, indexed income.
- It will be important to get the best price they can for their house (declutter/clean-up/fix-up for curb appeal and showing, don't let the agent low ball the listing, etc.)
- It will be important to try to buy a newer place and get the best price they can, a place that does not face a lot of imminent repairs and upkeep, that has the future ability to accommodate limited mobility, a walker or wheelchair through the living areas (washroom, washer & dryer access, etc.). Look for a house with low maintenance finishes (stay away from wood or wood trim that will need periodic painting, newer low-maintenance easily cleaned windows, etc.). Hopefully that will allow them to live there for another 20 years or longer. 
- The upkeep costs you budget will depend in large part on the age and condition of the home they buy. 
- Become aware of the community and government services that are available to seniors who are still living at home - provincial governments are motivated to keep seniors in their home for as long as possible.

It sounds like they are not requiring actual assisted living (using Ontario terminology). http://www4.gouv.qc.ca/EN/Portail/Citoyens/Evenements/aines/Pages/accueil.aspx?pgs


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## Just a Guy (Mar 27, 2012)

With only needing 50k, the banks would likely give them a heloc for the 50k. Qualifications are looser on helocs. 

I realize that their intention is to die in the house but, in my experience, this rarely happens. Society will force them out and into care even against their will.


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## OnlyMyOpinion (Sep 1, 2013)

Never having used one myself, so the OP's couple would take out a HELOC on their current home, they would then buy a 'new' place with a long closing and subject to the sale of their current house (seller may hard to get on side depending on the market), then the HELOC would be transferred to the 'new' place upon closing and paid off over time?
Or couple could sell their current house with a long closing and then look for and buy a 'new' house without conditions but timed to first closing (at risk if buyer of current house walked), then transfer HELOC to 'new' house?


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## fraser (May 15, 2010)

Here is a different take. We owned our homes for the past 35 plus years. At 60, both of us in good health, we decided to downsize from our 4BR monster that was in need of many upgrades. We planned to sell, travel, come home, and buy again.

We were certain that we wanted a bungalow, or an attached villa type condominium style bungalow. We were certain that we did not want an apt/condo and that we wanted to buy. Fast forward four years. We are happily renting. When we cam back the 'numbers' did not work. Our preferences had changes. Now we are so grateful that we resisted our habit of owning. Don't have to worry about the grass, the snow, the upkeep, insurance, the taxes....you get the idea. Believe it or not I still have garden tools etc in our storage locker since we were so sure that we would buy again. 

Slowly, after a few months of renting our buying preferences started to change. Don't know if we will buy again. Hard to say since we are still in a buyers market and expect to be for at least another year.

So, why not suggest to these people that they sell their home first. Then rent for a few months while they take their time looking for a new home. They may find that they like renting. The trick, I think, is to rent something that you really enjoy. In our case it happened to be a condo overlooking a golf course, two balconies, walking distance to rapid transit, walking trails, shopping centre, and library. Besides, if they do buy, they may have to move again in a few years if assisted living is required, for financial reasons, or because home upkeep is too much of a bother. In that case the real estate sales person and the tax man are the only winners.


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## Just a Guy (Mar 27, 2012)

You don't need to get a mortgage on a new house, banks will allow you to get a heloc on the house purchase. No need to transfer helocs or anything complicated, as long as the heloc is less than 60% LTV, and even then you can get 80% if you lock in the final 20%. 

You may need to talk to an experienced banker, but it can be done with no hassles.

I agree that they should sell first and rent for a bit to discover there's no real downside...


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## twa2w (Mar 5, 2016)

If the couples house was paid for, I would suggest staying and putting in a stair lift and/or reducing living space to only one or two floors. But since they have a large mortgage of 130k, my question is how are they affording it now.
As to the OP original question re obtaining a new mtg of 50 k on 18 k income, I don't see them having much issue. Banks will look at this based on gds and tds ratios, esp with increased income in 2 years. If they don't then they should look at the caisse pop or credit union.
Easy way is to go to existing bank and ask.
My concerns however, in addition to the points other posters have raised, are a) what happens if one dies. How much does the surviving spouse have left in income and b) what happens when rates rise as well as cost of living. If they take a 25 year mortgage and income is fixed, rising rates and inflation as well as increased medical costs could play havoc with their budget. 
It sounds like they may not have any heirs so they could consider a reverse mortgage so there would be no payments as long as they owned the house. The drawback is if they had to sell the new house down the road, they would have way less equity. I would not recommend a reverse mortgage with out very careful planning and consideration.
Not knowing the nature of health issues, their family situation, location, estate wishes etc makes it more difficult to be more specific with suggestions that might give them alternatives.
Are they willing to move to a further burb or community to lower costs. Will they need access to health care or public transit in near future. What about closness to family etc, etc.


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## drpap (Nov 10, 2015)

Great points. Thank you guys and gals so much.

To answer a few points back. Even though I appreciate the kudos, they are not my parents. I am simply trying to help a couple in need that I met in a social gathering. If this was a small loan to help someone out short-term, it'd be a different story, but I am not seeking to tie my fate to a potentially really bad late-age decision. However, advice is free, so I figured I'd try to help as much as possible. 

My point, as many of you brought up, was to downsize into an apartment for more comfort and automation of services, and invest whatever is left into something on the safer side, preferably with some income generation - such as using TFSAs as much as possible with some safe bet diversified dividend portfolios, and with some couch potato style investing mixed in, heavy on the bonds (since I don't think they're very risk tolerant at that age). This was the primordial stage of my thought process, but I wasn't able to indulge it further as it was quickly shot down.

Perhaps if there's no other alternative they'll reconsider - I'll try to add some of your invaluable comments into my next pitch of getting to financial happiness to them. 

I don't find being in debt very healthy, and it is even worse at their age. I appreciate the tip regarding the HELOC and indeed it sounds very interesting. I was not aware that it is easier to obtain. The only drawback with the HELOC I can see, is having financial discipline. On the upside however, it alleviates the need for fast cash at that age, be it for health issues or for home repairs. So thanks for the tip, I'll be looking into that more heavily if in fact they choose to go down the mortgage road no matter what.

I love the points fraser brought up, and I completely agree with him. When I'm at that age I feel i'd most likely go down the same road, and I agree that only the real estate agent and tax man win in the end if they end up selling in a few years because of a variety of reasons. I think it's mostly the comfort and knowledge of owning a house more than anything really. I don't think they need the living space but I think it's the mentality of home ownership.

To some of the other points, they do have 2 kids, which as far as I know have helped their parents significantly in the past, but I think the father (in particular) simply doesn't want to ask for more handouts from his kids again. So regarding the heirs, I think it'd be safe to call it a wash in the end. I don't think they've planned on leaving anything in the end (or at least nothing of significant value post-expenses, etc), and to be honest, I think that - as many of you pointed out and I agree - the house will lose value due to lack of maintenance over the years. And it makes sense, since who is going to do it at that age. Unless they hire someone and pay the premium price. Which is something else I'll look into as someone else mentioned services like that for seniors.

The HELOC sounds interesting in that regard with repairs, but also in the case that they have not planned for burial costs etc - which I have not inquired, but judging from the planning thus far, I would think that there have not been any considerations. Perhaps it would be prudent to bring it up. I don't mind being the bad guy, as long as some good comes of it. Does anyone have any input on burial costs by the way? A breakdown of sorts. I have never had to do any such planning of my own, and curious to know how much an estimate would go for. I have always thought that the price point would be around 15k all in, but that's a complete estimate on my end. 

As for rising rates, lowered income, inflation and medical costs, I have no clue. They live very frugally, and based on some brief number crunching they should be able to manage their current living costs + put a little on the side for a rainy day. But I think it requires a nice long conversation over coffee to outline various things to get a better feel and give them as much advice as possible. 

I truly appreciate the thoughts, gave me great ideas on alternate options and points of discussion to bring up. I hope this helps someone else in a similar situation, and maybe provide some further clarity. 

I'll keep an eye on this thread daily, and will post any updates if I have any. I feel that the discussion will be more of a "thanks for the ideas, a lot to think about" more than anything concrete, but I hope some good comes of it. Feel free to keep adding more sage advice if you have any. Many thanks.


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## Just a Guy (Mar 27, 2012)

One thing to point out to them, if the house isn't paid off, technically they are "renting" the property from the bank. There are also some drawbacks to a heloc, for one it appears on your credit report, something that a mortgage doesn't do, though I hear rumblings that that is going to change in the near future. For another, it's not a good tool for the financially irresponsible. 

As for burial cost, hat can vary a lot...it's a sales driven area at an emotional time in your life...costs can quickly skyrocket and even the prices between funeral homes vary tremendously. The people involved in this industry are very good salesmen (manipulators) and usually part people with a lot of money, but they do it in a very caring way...not a lot of pressure.

I believe base price is a lot lower than you think, but I've never really been able to establish what it is as even the same funeral chain quoted me different prices. 

They could always get a small 10-25k insurance policy of course to cover this.


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