Retiree Mortgage Solves Downsizing Dilemma
A retired couple recently reached out to me for assistance in downsizing from their beautiful West Vancouver house to a stunning waterfront condo 3km away.
They owned the house outright and had only given casual thought to selling the empty nest – until the apartment suddenly became available as a private sale. Such opportunities in a market as buoyant as this don’t come around all that often.
Their plan of attack was to immediately purchase the condo; then while remodeling it, to prepare for a de-cluttered and downsized move out of the house, which would then be groomed and staged for listing.
The clients had almost enough value in their portfolio of marketable securities to buy and renovate the condo outright as well, but were loathe to suffer the tax consequences of liquidating those investments – particularly given the current marketability of their principal residence (the sale of which would not be a taxable event).
So, the couple approached their private-client-group representative at their Big Five Bank for a short-term mortgage – only to be told that the institution could not help them. The banker purportedly explained to the clients that in being retired, they would not meet the bank’s income requirements to service the debt – regardless of their assets or cash flow; also, imposed regulatory restrictions precluded the bank from doing home-equity lending any longer.
The husband then approached me with the mandate of coming up with something “inventive.” As it turns out he chose that adjective carefully, because as an ex-financial services executive, he was expecting inventiveness (ie. presumably a private mortgage lender) to be relatively costly with a high interest rate and fees – but still less costly overall than triggering those investment taxes.
The next business day, I had the couple approved by another institutional lender for the home-equity loan they required to buy the condo. This lender did not qualify my clients on their income per se, but adjudicated the mortgage on the clients’ liquid net worth; the reasonability of their investment income to make the interest-only payments; the appraised value of their house and the condo; and the relative brevity of the term of the mortgage (which was open and therefore penalty-free upon the ultimate sale of the house). The upshot? The pricing of the loan was a little over half of what the clients were expecting to pay.
In parting – a message to downsizing, retired homeowners and their Realtors: if “the right place” happens to pop up before you’re ready to sell yours, call me to discuss if and how a mortgage solution like this is applicable to you or your clients. Please seek the advice of your accounting professional on all of your taxation matters.