Carrying credit card or line of credit balances into retirement can strain a fixed income. Consolidating with home equity can lower payments, but it needs extra care.

How lenders view retirement income

Lenders count pension, CPP, OAS, RRIF withdrawals and sometimes investments. Because income is fixed, debt ratios can be tight. Some lenders are more flexible with retirees who have significant equity.

Options

  • A refinance or second mortgage with a regular payment. See which way to consolidate.
  • A home equity line of credit, if you qualify, with caution about interest-only payments
  • A reverse mortgage, for homeowners 55 and older, with no required payments but a growing balance
  • Downsizing, which can clear debt without new borrowing

Comparing the options

  • Refinance or second mortgage: lowest cost if you qualify, but you need income to support a regular payment
  • HELOC: flexible, but interest-only minimums can let the balance linger for years, and the rate is variable
  • Reverse mortgage: no payments required, which can ease cash flow, but interest builds on the balance, rates are usually higher, and it reduces the equity left for you or your estate. Get independent advice before choosing one.
  • Downsizing: clears debt and may free up savings, but involves moving costs and lifestyle change

Documents lenders usually ask for

Pension statements, CPP and OAS statements, your latest notice of assessment, and RRIF or investment statements. If you draw regularly from investments, lenders may count part of that income.

Think about your estate

If you plan to leave your home to family, borrowing against it reduces what passes on. Talking openly with family can help avoid surprises later.

Watch for pressure

Retirees are sometimes targeted with aggressive offers. Take your time, get everything in writing, and talk to your own lawyer before signing. See red flags to watch for.

A budget built for fixed income

Once debts are consolidated, build a budget around your actual monthly income, with room for irregular costs like home repairs and car replacement. See budgeting after consolidation.

Protect your future

  • Leave enough equity for possible future needs, such as care or a move
  • Make sure the payment fits comfortably within your fixed income
  • Address what caused the debt
  • Involve family and consider independent financial advice

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