Many retirees have the strongest balance sheet of their lives, with a paid-off or nearly paid-off home, and the smallest regular income. That combination can make banks hesitant, even when borrowing is perfectly sensible. Equity-based lending is one of several options worth understanding.

Why retirees sometimes struggle to qualify

Banks qualify borrowers on income and debt ratios. Pension income, government benefits and investment withdrawals can look small on paper next to a mortgage payment, even when the household is comfortable. Some income sources are also counted differently from employment income.

Options to consider

A bank or credit union mortgage or line of credit

If your pension and other income are enough, this is usually the lowest-cost route. Some lenders count investment assets in their assessment.

An equity-based mortgage

If a bank’s formula says no, an equity lender may say yes based on your equity, with regular payments that fit your budget. Expect higher costs. See what equity mortgages cost.

A reverse mortgage

Available to homeowners 55 and older, with no required monthly payments. Interest builds up and is repaid when you sell, move out or pass away. See equity mortgage vs reverse mortgage.

Downsizing

Selling and moving somewhere smaller can free up equity with no new debt at all. For some, it’s the simplest answer.

Questions to ask yourself

  1. Will the payment be comfortable for the rest of your retirement, including if a spouse’s pension changes?
  2. How long will you stay in the home?
  3. What do you want to leave to your family, and does the plan respect that?
  4. What’s the money for? Home repairs, helping family and paying off debt carry different weight.

Involve the people who matter

Talk it over with your family, and consider independent legal and financial advice. A lender or broker should never pressure you, and you should never feel rushed to sign.

See also getting a mortgage on a paid-off home and the risks of borrowing against your home.

This article is general information, not financial, legal or tax advice. Lender requirements, rates and fees change and depend on your situation.