Your age is just a number. But is it an important number for lenders while approving your home loan application?
Truth be told, there’s really no age when you are too old for a mortgage. Theoretically, you can get a mortgage at 63, as well as 18 years of age, which is the minimum age for applying for a mortgage. That’s because the current discrimination laws prohibit lenders from discriminating on a borrower’s age.
However, that doesn’t necessarily mean it’s easy for older borrowers to get their mortgage application over the line. Lenders have the responsibility to ensure that you can repay the loan in full without experiencing any financial hardship. So, no matter your age, you must be able to prove to a lender that you have the financial means to pay off your mortgage. At 30, it’s usually straightforward. But the closer you get to retirement, the more is the risk you pose to a lender. For example, if you apply for a mortgage with a 30-year term at the age of 60, lenders will seriously doubt your capacity to repay the loan over the next 30 years.
The Global Financial Crisis made things even more difficult. Before the crisis, there were several homeowners in Australia who had borrowed 100 per cent or more of the property value. But some of these homeowners were left with homes valued less than what they had borrowed. Lenders who thought they could make good their losses by selling off the properties of the defaulters suffered heavy losses. As a result, lenders started imposing several restrictions on mortgage products, making the eligibility criteria for a home loan tighter than ever before.
Keeping this in mind, if you are an older borrower, over 50 years of age, having your mortgage application approved might be an uphill task. It could help to check with a mortgage broker to find out about lenders that offer home loans suitable for your requirements.
Home loan options when you are over 50 years old
Lenders lend you money with the provision that the money will be paid back over a fixed term with additional interest. Considering that a typical home loan term is between 20 to 30 years, the older you are at the time of applying for a mortgage, the nearer you are to retirement. For lenders, it implies taking on higher risk, as retirement will affect your income and ability to repay the loan in the future. Older borrowers are also at higher risk of contracting diseases or falling ill, hampering their ability to pay back the loan.
In practice, even though lenders have no restrictions on lending to customers who are retired or nearing the retirement age, they do want to know how you intend to repay the loan after your retirement. Thus, in addition to detailed information about your employment and income from other sources, you are also required to provide the lender with an exit strategy. This plan outlines how you are going to pay off your mortgage without facing any financial hardship. Your exit strategy may include a lump sum amount or ongoing income from your superannuation, downsizing your home, or selling off your shares or investment property. Overall, you should be able to prove that it is safe for you to borrow the money.
Suppose you are 65, own an investment property, have a considerable sum of money in superannuation, and intend to work for a few more years. In that case, you might have a strong chance of approval as you can sell your investment property and use a part of your superannuation to repay the loan. However, if you don’t own any assets and don’t have a clear exit strategy, lenders would be hard put to approve your application merely because you plan to work for another decade.
You may consider these additional tips to improve your chances of mortgage approval at 50 and beyond:
- Think about borrowing for a shorter term, so it is paid out before you retire.
- Consider providing a practical exit strategy for your mortgage if the term exceeds your retirement age. You may mention what assets you’d sell off to repay the loan. However, it is best that you also consider if there’s enough left to fund your retirement without any financial hardship once the exit strategy is put into action.
- Try to research independently or connect with a broker to find out about lenders that have flexible eligibility criteria for older borrowers.