Loans after 60!
If you are aged 60+, what chance do you have of successfully applying for a mortgage?
I have quite a few clients who have divorced or are just moving toward finalising separation and find themselves either having to consider buying out their previous partners share of the home or wondering if they can afford to purchase a home for themselves.
Some of my clients are in their late 50’s with my oldest client to date being 68.
A strong belief held by many in this position is that there is no way that any lender will give them a loan. And even if they did, would they be able to afford the loan repayments over a shorter loan repayment period or would they have to settle for living in shoe box sized accommodation!?
For lenders, its all about mitigating risk. It’s not solely about the borrowers age, the size of the loan or the length of the loan repayment, it’s whether the borrower will be financially able to repay the loan in the future without them experiencing financial hardship.
| Important points for your consideration: | Y | N |
| 1. Do you have a deposit? | ☐ | ☐ |
| 2. Can you demonstrate your ability to repay the loan at age 70? | ☐ | ☐ |
| 3. Do you meet the lenders serviceability requirements? | ☐ | ☐ |
| 4. Does the lender have policies that will support your application? | ☐ | ☐ |
| 5. Will I have to make loan repayments over a shorter loan term? | ☐ | ☐ |
1. Do you have a deposit? The stronger the deposit you have, the lower the risk. Ideally at least a 20% deposit is required although depending on the strength of the application, some lenders will consider less.
2. Can you demonstrate your ability to repay the loan at age 70? Borrowers that have savings, shares, investment properties, a business they can sell for a good profit, the option to downsize from their current home to a smaller one, an inheritance, or a superannuation, if any one or combination of the above would cover the outstanding mortgage balance by age 70, then this increases the potential for the borrower to secure a loan. You just need to be able to ‘demonstrate how you could repay the loan’.
a. The value of property in Australia increases in value by an average of 6.3% per annum. This will differ based on location and property type. The graph titled ‘Home Value Increase’ illustrates the increase in value of a $1,000,000 home over a 10-year period purchased by a borrower at the age of 60 and its value at aged 70 at 6.3% and 3%.
b. Superannuation funds historically are shown to grow in value between 5.8% and 9.1% over the past 10 years. See interest calculator below that illustrates the increase in value of a $350,000 Superannuation over a 10-year period with ongoing monthly contributions of $600 with a growth rate of 8% on average per annum.
i. Both above should be considered when determining your ability to repay a loan.
3. Do you meet the lenders serviceability requirements? Can you afford to repay the loan after you have covered your monthly living expenses? If so, each loan application will then be stress tested to see if the applicant can repay a loan when 2.5-3% has been added to the rate applied for. E.G. The rate of the loan package you are applying for is 6%, the lender will then stress-test your ability to meet repayments by increasing the rate to 8.5%-9% for the purpose of ‘determining serviceability’.
4. Does the lender have policies that will support your application? Not all lenders have favourable policies for older borrowers. Brokers with many lenders on their panel have more options for older borrows.
5. Will I have to make loan repayments over a shorter loan term? No, but depends on the lender. Monthly repayments over a 30-year period are obviously going to be significantly smaller than over a 10-year period. E.G. $2,727 over 30 years per month compared to $5,338 over 10 years per month for a $500,000 loan @50% LVR fixed at 5.14%. A 30-year loan term increases a borrower’s monthly cash flow. In the above example the cash flow increases by $2,600 per month.
For anyone over 60 considering whether they can apply for a mortgage, the answer is yes you can, but make sure you discuss this with a mortgage broker who has access to many lenders and financial tools.
