Ask the Money Lady,
I am a pensioner and own my home, I have no debt, but I wanted to get a line of credit from my bank to help out my daughter and maybe do some upgrades to my home. I went into my bank and they said I don’t qualify. I couldn’t believe it. I have been with the same bank for over 30 years. What can I do now?
Janice M. (Disappointed)
I’m sorry you got declined by your bank. This is becoming a very common thing nowadays for older clients who have been loyal to their Banks for many years. The fact is, the Banks are very different now and it is no longer enough to just own your home and have no debt. Prior to 2018, you could easily get an equity loan or line of credit based solely on the value of your primary residence. Not now. The banks are now mandated to show income to mitigate risk. You must show enough income to qualify for the new loan in addition to any other debts or liabilities you pay for month to month. That means, banks will now need to account for property tax payments, heat/hydro costs, condo fees, car payments and any other outstanding monthly debt to ensure that you can sufficiently pay these expenses plus the new loan payment. The problem is, most pensioners report very little income in retirement and subsequently will now not qualify for a new loan or line of credit, even though they probably could easily make their payments and would never dream of defaulting on the loan.
If you are reading this, and already have a line of credit that you got years ago, make sure you use it once in awhile, to keep it active. You certainly do not want to have to apply for it now if your income has gone down. Hopefully your bank doesn’t close it from inactivity, which also seems to be on the rise, resulting in you not having access for future uncertainties.
Janice, if you have been turned down by your bank there are few other options to consider. You can reapply with your daughter and use her income to help qualify. Of course, the Bank would also take into account your daughter’s liabilities together with her income, so hopefully she has enough income to cover the monthly payments.
Another idea could be to get a margin loan. Most investment firms offer prime rate margin loans, that allow clients to use their investment portfolio as collateral and to only pay the monthly interest payments on the balance drawn down.
If that doesn’t work, you can still find some lenders that will do “true equity lending” without using income to qualify. These lenders are typically Credit Unions and B-Lenders. They will usually offer loans up to 65% of the appraised value of your property less any outstanding mortgages. They offer a very good product selection, however because they are approving the deal without income, they will charge a slightly higher rate than the big Five Banks. This rate will usually be at Prime + 3 or 4%. I know this is a much higher rate than you may have been anticipating, but sometime this is still a good option for short-term lending. It should not be discounted, especially if you only need the funds for Bridge Financing or until you can cash-out a future investment.
Good Luck and Best Wishes,
Written by Christine Ibbotson, Author of “How to Retire Debt Free and Wealthy” Follow on Facebook & Instagram
If you have a money question, please me on my website: www.askthemoneylady.ca