Mortgage options for mature borrowers
There are many reasons why older Australians or mature aged borrowers (in their 50s or 60s) would need to borrow money at a later stage in life. These reasons may range from divorce, the passing away of a partner, further investments, assisting with children’s property purchases or upsizing/downsizing.
Mature borrowers over the age of 50 will have the following lending rules applied against them:
- The loan must be repaid prior to retirement (resulting in a reduction of loan term). The standard retirement age is typically assumed to be 65 by lenders.
- Borrowers must show that they can meet repayments without undue hardship. That is, you would need to show that your income and employment will continue for the duration of the loan term.
- Borrowers may need to show a defined exit strategy.
Reduction of the loan term
Lenders will consider the likely length of your employment before you retire and set a loan term according to their estimate of your working life. Typically, white collar workers can readily demonstrate that you would be able to work until the age of 70 or 80. This may not be the case for blue-collar workers over the age of say 60 who may not be able to demonstrate that they can work for another decade.
Showing you can meet repayments
Potential older borrowers are assessed on their capacity to service/repay the proposed home loan (loan-servicing).
Typical factors used by lenders to determine loan-servicing capacity are:
- If you are still working and the likelihood of continuing to earn employment income – an older borrower may need to prove that they can continue working until the home loan is repaid.
- Whether you earn other ongoing income from shares or rent – you will need to demonstrate that this income is recurring and will continue for the duration of the home loan
- If you have other saleable assets (such as shares, other property, a business or large superannuation assets) – lenders tend to look favourably on older Australians with assets of value as these can cover the mortgage in the event of employment ceasing.
Defined exit strategy
Where you want to go for a longer loan term, a lender may require a written ‘exit strategy’ to be provided.
An exit strategy is an explanation of how the loan will be repaid/serviced even when the borrower stops working. This will usually involve the demonstration of significant saleable assets such as other investment properties, large share accounts or superannuation accounts or ongoing income from such assets. Relevant supporting documentation such title deeds, share account statements or superannuation balance statements would need to be provided as part of the mortgage application.
Alternatively, an exit strategy could involve downsizing a family home at retirement to terminate a mortgage and unlock the equity. For example, let us consider a mature borrower who owns a house in Sydney worth $1m with an existing $300k mortgage outstanding who intends to downsize to a $450k apartment on the Central Coast upon retirement. In this case, the borrower can sell the $1m property and use the proceeds to (1) repay the existing mortgage and (2) purchase the $450k apartment, leaving $250k for other investments for retirement.
Everyone has a unique set of personal financial circumstances and priorities. With access to a wide variety of lenders, I am always happy to discuss which loan package is most suitable for you either in person, over the phone (02 8378 4293) or via email (email@example.com).