A customer recently made an appointment to speak with me. A woman in her 70s, she had a home equity line with a big national bank and she’d used it wisely for many years.
Her home equity line was coming up for renewal in 2019 and the interest rate was going to be increasing quite a bit. That concerned her. She had done some research and her grasp of both her situation and her options was excellent.
This woman was single and expected to remain single. She was happy in her house and the house was not a burden to her either physically or financially.
She very much wanted to stay in this area, so she had looked at local condos and apartments. But the condos were expensive and the monthly rent on an apartment would have cost her more than her house did, leaving aside the cost and upheaval of moving.
She had also considered a reverse mortgage but came to the conclusion that would not be right for her. “Too complicated,” she told me. “Too expensive as well,” she thought, and she didn’t want to have “a silent partner” who had a say in what she did with her home. Again – good thinking.
Her question to me was a great one: At her age (73), would it be allowable for her to take out a 30-year mortgage? Because she didn’t expect to be around to pay it off when she was 103.
While I was not sure a mortgage would be right for her situation, I was able to assure this customer that people in their 70s and older are definitely qualifying for mortgages with the expectation that the loan will be paid off when they leave the house. (And given today’s life expectancies, it is possible we will see some of those loans actually paid off in 30 years by the original borrower.)
I asked about her income. It was basically Social Security and a small amount of interest from some investments.
I also asked why she wanted the money she’d get from a mortgage refinance. It turns out she needed funds occasionally for the upkeep of her home. A mortgage refinance would give her more than she needed but the rates were the lowest.
As it turned out, this woman’s individual income situation was not enough for her to be able to comfortably afford the monthly payment on a 30-year mortgage.
But that turned out to be a lucky break for her.
Thanks to the significant equity she had in her home and based on her excellent credit score, she easily qualified for a new equity line at a significantly better rate than the big national bank was offering. She would have continued access to her equity as she needed it. Plus – unlike a mortgage refinance – she would only pay interest on the amount she was actually using.
It was a clear win-win and that’s what she decided to do.
It’s good to see how often “lucky breaks” like that happen for careful consumers who are willing to keep an eye out for their own best interests and keep asking questions until they fully understand their options so they can choose wisely. If there’s a ‘secret’ to financial success for most people, that’s it.
Nick Maffeo is the President & CEO of Canton Co-operative Bank in Canton. “Smart About Money” is a regular column he writes for the Canton Citizen. Have a financial question you’d like to ask? Email to firstname.lastname@example.org.