We hear a lot about Millennials struggling to save for a home deposit while gorging on avocados.
But the 50-plus don’t have it so easy either.
So, before you rush out and buy a second property or investment pad, there are a few things you should know about applying for a home loan if you’re over the age of 50.
The exit strategy
A lender’s primary goal when lending money is to get it back. Applying for a home loan at the age of 50 or over is acceptable to most lenders (not to mention far more common these days due to divorce or passing of a partner, downsizing/upsizing and snowballing median house prices), however most lenders will apply more scrutiny to your application to ensure retirement won’t limit your ability to pay off the loan.
As a rule of thumb banks will usually want to match the length of your home loan to the number of working years you have ahead. If you’re 50 and can show you plan on working til you’re 80, then you shouldn’t have too many problems. However, if you’re 55 and imagining quiet walks on the beach and yearly trips to Europe by the time you’re 60, you might actually be rejected for a home loan based on lender rules. (It’s also worth noting that most lenders have their own idea of retirement age: for some it’s 75; for others it could be 70).
The good news is that borrowers aged 50 and over can get a home loan by presenting their lender with a viable exit strategy. An exit strategy outlines your expected retirement age and shows how you plan to cover the debt if you retire before the end of the loan term.
This could be through the sale of other properties, the selling of shares – or perhaps you’ve got a good superannuation fund you can pull from. If the loan is for an investment property, you may be planning to sell it when you retire and could pay off the loan from the sale of the property.
What matters is that you show you have the means to implement your exit strategy with proof, such as superannuation figures, share payment statements and bank savings. If you’re already retired, you can still qualify for a home loan, however you’ll need to prove you have a viable exit strategy in the form of assets.
The income source
The other thing to consider as someone aged 50 or over, is how lenders treat your income source. Some people over the age of 50 are working part time or, if retired, may be receiving government benefits.
Working part time can limit the number of home-loan products available to you. You may also find lenders have stricter criteria when it comes to giving out loans. Most will want to see that you have held the part-time job for at least 12 months, for example.
You can secure a loan if you’re receiving government benefits, although only certain types of veteran pensions are accepted by lenders. If you’re receiving a carer’s allowance, you can usually put this towards your home loan application, although the products made available to you will depend on the lender.
Remember, it’s illegal to discriminate against someone based on their age but if you’re 50 years of age or older, be aware there is a chance your application could be knocked back if you can’t show how you’ll repay a 30-year loan into retirement via your exit strategy. So get your exit plan in order and start booking those flights to Europe.
If you’re thinking of buying property and you’re over 50:
- Have a retirement plan. Keep in mind, the bank will usually want to match the length of your home loan to the number of working years you have ahead. And bear in mind that lenders have their own idea of retirement age too.
- You’ll need an exit strategy. It could be a plan to sell an existing property, sell shares, or dip into your super fund to pay off the loan.
- You’ll need proof of the exit strategy. This could be in the form of a superannuation fund, share payment statements and/or bank savings.
About the author: Vincent Turner is the CEO and Founder of online mortgage broker uno Home Loans. This information is general in nature and you should always seek professional advice when making financial decisions.