There’s no denying the older you are, the harder it can be to get a home loan, but that doesn’t mean it’s out of the question.
Some lenders have few restrictions when it comes to age but that said, older borrowers might have to jump through a few extra hoops to get their home loans approved. Let’s check the lay of the land if you’re of a certain age and seeking a home loan.
What’s the maximum age for a home loan?
In simple terms, there is no maximum age for a home loan. Federal government legislation prevents lenders from discriminating against potential borrowers based on their age.
However, in practical terms, lenders need to assess the risk of lending to all applicants. They are also bound by regulatory requirements not to put a borrower into financial difficulty.
If your loan term is going to extend past your retirement age - or you are already retired - lenders will want to know how you’re going to repay the loan. In lending terminology, this is known as an ‘exit strategy’.
If you are an older borrower with a sound exit strategy, generally lenders won’t have too many qualms lending to you.
What are some common exit strategies for older borrowers?
There are a few exit strategies that lenders may accept, including:
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The sale of a current property and moving into a smaller, less expensive one (downsizing)
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Sale of other assets such as investment properties, shares, or inherited assets
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Access to (or ongoing payments from) superannuation
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Plans for a lump sum payment from superannuation after retirement
Exit strategies are intended to show you have a plan and the means to repay the debt you are taking on.
Why are lenders hesitant to lend to older people?
Financial institutions lend money to people with the provision this money will be paid back, with interest added.
Home loans typically range from 20 to 30 years. This is going to sound harsh but in blunt terms, the older you are, the greater the chance there is of you dying and not being able to repay the borrowed amount.
As most of us are acutely aware, lenders want to make money and if there’s a risk a borrower can’t make their repayments, they won’t lend to them.
What factors do lenders take into account when reviewing older people’s applications?
There are several factors that lenders may consider, including:
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Is the application for an owner occupier property or for investment purposes?
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How strong is the applicant's net asset position?
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How strong is the applicant's superannuation?
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If an asset position is ‘weak’, and the applicant is in their 40s or 50s, why has the borrower has not amassed any assets?
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If the applicant will be retiring within the proposed loan term, how are they going to be able to continue making loan repayments?
What home loan options do older people have?
There are four main home loan options for older people. Keep in mind though, if you’re an older borrower, you may or may not be eligible for some of these, based on the specific eligibility criteria of individual lenders.
Option 1: Bridging loan
A bridging loan is designed to bridge the gap in funding if you want to buy a new home but haven't sold your existing one yet. This can sometimes be the case with downsizers who want to secure a property before their current one is sold.
Generally, bridging loans are easily accessible to older borrowers as they’re a short-term loan facility.
Lenders will finance the purchase of the new property then wait for the existing home to sell, generally for six months although some bridging loans can be for 12 months.
Once the original property is sold, the loan is settled. During the interim time, borrowers generally pay the upfront fees on the loan, which can sometimes be charged as a percentage of the loan value, as well as interest on the loan.
Bridging loans typically have higher interest rates than standard loans and their fees can also be considerably hefty.
Option 2: Reverse mortgage
A reverse mortgage, sometimes knows as seniors' equity release, allows older people to access the equity they’ve built up in their home and use it as security for a loan.
These loans are specifically designed for older people, and others, who may be ‘asset rich and cash poor’.
In basic terms, a reverse mortgage is when a person’s home is used as security for a loan that doesn’t require any repayments until the home is sold or the last of the borrowers on the mortgage has passed away.
These loans can be useful for older people who need access to funds for living costs or unforeseen expenses and don’t want to sell their homes.
Reverse mortgages have significantly higher interest rates than normal home loans and generally come with high fees.
The debt also compounds, meaning the borrower is charged interest on not only the amount withdrawn but also the interest itself.
It’s worth noting a 2018 review from the Australian Securities and Investments Commission (ASIC) raised concerns that some borrowers taking out reverse mortgages didn’t fully understand the long-term implications of doing so.
It’s advised to seek professional advice or consider this strategy very carefully before entering into any contracts.
Option 3: Investment loan
Many lenders can be more willing to lend for investment properties, regardless of age.
Generally, lenders want to see you purchase a well-located property with some sort of cash flow to help fund your repayments. Some may ask older borrowers to outline an exit strategy, but this is generally less important for investment properties.
In simple terms, many lenders will be more willing to finance an investment purchase because they’d have some confidence the borrower would be able to sell the property and settle the loan without affecting their own living arrangements.
Option 4: Home loan with strong exit strategy
For an owner-occupier home loan, your age, your current financial position, retirement plans, and your exit strategy become central to your success in being approved.
Some lenders might ask for an exit strategy for borrowers aged over 45 but by 55, many lenders will require a written exit strategy as well as evidence of your superannuation position and any other assets you’re proposing could be used to settle the loan.
If you’re an older applicant, giving some thought to your exit strategy is vital before approaching a lender.
Some case studies
Let’s consider a strong exit strategy:
Len Da Lott is 55 years old and wants to keep working as a bookkeeper for his private clients for the next 10 years until he’s 65. Len already has $1 million in superannuation and an investment property worth $650,000. He’s after an $800,000 home loan with the exit strategy of selling his investment property and putting some of his superannuation towards paying out the loan when he eventually retires.
Len likely has a good chance of being able to secure a home loan.
Conversely, here’s an investment strategy that probably won’t fly:
Loana Nunn is 55 years old and has $200,000 in superannuation and no other assets. Loana plans to work for another 12 years until she qualifies for the age pension. She is applying for a $650,000 loan to purchase a home. Her exit strategy is that she is expecting a divorce settlement from the Family Court and stands to inherit her parents' home when they pass away. She anticipates her superannuation balance will be $300,000 when she stops working. She also expects to get a golden handshake from her long-term employer when he eventually sells his business.
What exit strategies are lenders likely to reject?
Typically, lenders won’t accept exit strategies that are considered unreliable. Here are several examples:
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Anticipation of an inheritance
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Anticipated family law payout
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Anticipated employer bonus, or wage increase
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Projected superannuation balance
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Anticipated Workers Compensation payout
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The sale of a business, or payout from a dissolved business partnership
Some lenders may make some exceptions for individual circumstances but it’s likely Loana will find it difficult to secure a home loan.
How can older people increase their chances of approval?
There are a few ways older people can increase their chances of home loan approval:
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Provide a strong exit strategy if the loan term exceeds your retirement age, preferably backed by assets you will be able to sell to repay your loan while still having sufficient assets to comfortably fund your retirement.
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Consider a shorter loan term so the loan can be paid out before retirement. This will increase the monthly repayments of the loan but also reduce its overall interest cost.
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Consider a smaller loan amount, either through putting up a larger deposit or looking at more affordable properties to purchase.
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Apply with a lender that is more flexible or specialises in providing loans to mature borrowers. A good mortgage broker can be invaluable in steering you in the right direction.
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Be aware of federal and state government programs and concessions that may assist you in securing a home loan.
Finding a competitive home loan
Understandably, finding a loan with a good interest rate could prove the difference in getting an older person over the line for home loan approval. If you're seeking a loan, the table below features owner-occupier home loans with some of the lowest interest rates on the market.
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Additional Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
6.04% p.a. | 6.08% p.a. | $3,011 | Principal & Interest | Variable | $0 | $530 | 90% | 4.6 Star Customer Ratings |
| Promoted | Disclosure | |||||||||
5.99% p.a. | 5.90% p.a. | $2,995 | Principal & Interest | Variable | $0 | $0 | 80% | Apply in minutes |
| Promoted | Disclosure | |||||||||
6.09% p.a. | 6.11% p.a. | $3,027 | Principal & Interest | Variable | $0 | $250 | 60% |
| Promoted | Disclosure |
Savings.com.au’s two cents
While there is no maximum age for taking out a home loan, the most important considerations are your ability to meet your repayments and your exit strategy when you stop earning income. You need to carefully consider these factors before you approach any lenders.
Remember, lenders are obliged not to put you in a difficult financial position and that is for your own protection. That said, there are a number of home loan options available to older people on the market. Engaging the services of a knowledgeable mortgage broker can be a wise move in finding the right lender and the best home loan product to suit your individual circumstances.
Image by Alex Blăjan on Unsplash
Disclaimers
The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.
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