How old is "too old" to get a home loan?
Lately I’ve had a few conversations with customers about whether there’s an ‘upper age limit’ when it comes to borrowing to purchase property, and the impact that a borrower’s age can have on a loan approval. While purchasing property later in life may mean you have to jump through a few extra hoops to get approved, it’s understandable when you consider that home loan terms can be 30 years and borrowers over a certain age may be paying off their loan after they retire. Here I’ve covered off a few of the things that mature borrowers should be aware of and why age isn’t necessarily a barrier to borrowing.
Exit strategies are key.
While some lenders are stricter than others, here are plenty of lenders that have few or no restrictions when it comes to lending to those who plan to or are currently retired – even if the loan term exceeds their retirement age.
However, if your loan term extends past your retirement age, lenders do want to know exactly how you plan to repay the loan after your retirement and this is referred to as an “exit strategy”.
Exit strategies are a plan that maps out how you plan to pay off your home loan without facing financial hardship.
What are the most common exit strategies?
There are some commonly accepted exit strategies for older borrowers and these include plans to:
The optimal exit strategies consider your financial position, income level and retirement plans as well as your age. They should show convincingly that you can repay the debt, however if there’s any doubt, then you may be declined by the lender.
Downsizing is an exit strategy used by many mature-aged customers since owner-occupied properties are typically not subject to capital gains tax when the owner decides to sell and downsize. Once your kids have grown up and have left home, a move to a smaller property could be on the cards anyway.
Is it possible to combine exit strategies?
Yes, you can combine several strategies to prove that you can comfortably pay off the mortgage when you retire. One example of this is that you may plan to downsize to a smaller property and also use your super balance to prove you can pay off the remaining debt.
Are there things that should be avoided with exit strategies?
While it is illegal for lenders to discriminate against someone based on their age, lenders do have a responsibility to ensure that anyone they lend to can comfortably afford to repay the loan without experiencing any significant financial hardship.
Certain things may not be considered suitable as part of an exit strategy since they are thought to be unreliable. Some examples include:
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It is possible for some lenders to make exceptions and approve people with similar exit strategies to those listed above (such as exit strategies based around superannuation or the sale of a business) if there is solid evidence that can be provided.
Is an exit strategy needed for an investment property loan?
Not typically. An exit strategy is usually not required for the purchase of an investment property as you can simply sell the property when you retire (assuming you also own a home).
Existing laws require lenders to ensure they don’t worsen your financial situation. So, in theory if you own an investment property and still have a home, financial difficulty isn’t generally anticipated if you need to sell the investment property.
Is it possible to be too old for a mortgage?
As there’s no mandatory retirement age in Australia, lenders consider 65-75 to be the age window of retirement. Interestingly, as a result of this alongside home loans having a term of 30 years, people over 35 years may need to show that they can repay the home loan before they retire. This may be increasingly common as according to new research data from UNSW, the average age of a first homebuyer is now 36!
Different lenders have their own accepted retirement age policies, but in general here is a rough guide to what requirements you may expect at various ages.
Age 35 - Lenders will consider your profession and likely retirement age when deciding on your home loan approval.
Age 45 - Superannuation statements may be required, or you may need to demonstrate that you have an exit strategy in place to repay the loan when you retire.
Age 50 - Most lenders will allow you to borrow, but some may decline your application due to age unless other steps are taken such as providing an exit strategy.
Age 55 - Almost all lenders will require a written exit strategy, evidence of your superannuation and other assets that can be sold to repay the proposed debt.
Age 60 – The majority of banks are likely to decline your application due to your age; however, if you have a continuing source of income after retirement, or have assets you can sell to help repay the loan, then you might be approved for a loan.
Age 60-plus - You’ll only be able to borrow money if you can prove an ongoing post-retirement income and will likely require a very compelling exit strategy.
If you’re a mature-aged borrower, let’s have a chat and explore the options available to you.
While every situation is different, mature borrowers can improve their chances of being approved for a home loan by considering a shorter loan term so that the loan is paid out before retirement, providing a solid exit strategy if the loan term exceeds retirement age and applying with a lender that is more flexible. We can explore all of these options and what will best fit your needs and circumstances.
Call me on 0431 708 806 today or send me a LinkedIn Message to book a free no-obligation meeting or a quick chat. For more details on Mortgage Choice Kogarah, you can visit our website.