Mortgage financing: what challenges do retirees face?

People reaching retirement age face several challenges.

One of the most significant challenges is continuing to live in their property while their income significantly decreases. Additionally, a large part of their wealth is often tied up in the value of their own property.

What are the challenges faced?

• Reduction in income: The cessation of professional activity leads to retirement income (AVS pensions + pension fund benefits) being lower than the income earned while working. Banks assess repayment capacity based on the ratio between theoretical bank charges and actual income, which makes it harder to obtain or renew a mortgage.
• Mandatory amortization: Banks often require that the mortgage debt be reduced to the level of the first mortgage (a percentage of the property’s value, often 2/3) at retirement age. This means that additional amortization is often necessary, adding even more financial pressure on retirees.
• Risk of having to sell the property: Some retirees may face the risk of having to sell their home if they are unable to refinance their mortgage under acceptable conditions.

How can retirees’ wealth become a solution?

Some retirees have much lower incomes at retirement but have accumulated significant financial wealth during their working years. This wealth can help offset the income shortfall.

• Leverage assets: They can use their financial investments to generate additional income, which banks will include in their calculation of the income-to-expenses ratio mentioned above.
• Pay off part of the mortgage: If funds are available, it may be wise to reduce mortgage debt before or at retirement.
• Life annuity: Homeowners sell their property and therefore no longer have a mortgage, but continue to live in the property until their death or move to a care facility.
• Plan for retirement: Early financial planning is often essential to address retirement concerns ahead of time and not just at the last minute. Planning for retirement early enough allows for finding solutions and creating conditions that will make the transition smoother.

Refinancing a mortgage in retirement is not insurmountable, but it requires a good understanding of the available tools and early action. Guidance from professionals, combined with a thoughtful and proactive approach, can help retirees secure their financial situation and enjoy this new phase of life with peace of mind.