Is there an age that’s considered too old for a home loan?
There’s technically no age limit when it comes to taking out a home loan, as long as you can meet the lending criteria of your chosen loan provider, like having a source of income and the ability to repay the debt within the chosen timeframe.
At the same time, most mortgages last for 25 to 30 years. If your home loan is likely to extend past your expected retirement age, you’ll need to show how you’ll repay the loan without your regular income (this is known as an exit strategy).
What if one of the borrowers is older than the other?
When borrowing as a couple, lenders may use the age of either the youngest or oldest borrower when working out if an exit strategy is required, depending on the particular circumstances.
This is when you may need to call lenders to check their policies on this or enlist the help of a mortgage broker.
What home loan and finance options could seniors access?
Standard home loans
If you meet your chosen lender’s criteria, you may be able to take out a home loan. You’d need to show you can afford the loan now and into retirement, and you’ll usually need to provide an exit strategy.
Home Equity Access Scheme
If you’re a pensioner who owns property in Australia, you may be eligible for the Home Equity Access Scheme. This scheme allows eligible pensioners to apply for loans from the Australian Government, which can be paid out as a non-taxable lump sum or income stream. You’d need to be of Age Pension age or older and eligible for a qualifying pension. Your property would act as security against the loan.
The loan amount can be up to 1.5 times the maximum payment rate of your eligible pension, depending on your age and how much equity you have in your property, and is paid fortnightly — although you may be able to get an advance payment as a lump sum.
You must repay the loan and any associated costs in time, whether from your savings or as part of your estate, but the loan’s interest rate is usually lower than a traditional home loan. Check with Services Australia to see if you’re eligible to apply and if so, how much you may be able to borrow.
Reverse mortgages
A reverse mortgage can let you access a portion of the value of the equity you have in your home, using your property as security for the loan. These mortgages are typically reserved for those aged 60 and older. Unlike a standard home loan, there are no scheduled repayments required, with the interest charges being added to the balance of the loan.
The loan is typically repaid when you either:
- Sell your house
- Move into aged care
- Pass away
The amount you can borrow depends on how much equity you have in your property and your age.
There are risks with a reverse mortgage, as interest rates are normally higher than those on standard home loans, and interest charged also compounds over time, which means the amount you owe may get bigger. However, modern reverse mortgages have negative equity protection, which means you can’t end up owing more than your home is worth.
Home loans with a line of credit
A line of credit home loan also uses the equity in your home, allowing you to withdraw funds up to a credit limit approved by your lender. The money can be drawn all at once or spread out over time, making it a flexible option.
You generally only need to pay interest on the amount of money you have drawn down at any given time, not the full credit limit. These types of loans have become rare and can come with some disadvantages, such as potentially higher interest rates than typical principal and interest home loans.
It’s important to shop around to see what different types of finance options may be available to you, and what interest rates, fees and other costs they may charge. It may also be wise to obtain suitably qualified financial advice before proceeding.
What are some common exit strategies?
Some commonly accepted exit strategies include:
- Downsizing your property
- Selling assets such as an investment property or shares
- Using ongoing income from superannuation like through an account based pension to meet repayments
- Using your superannuation to make a lump sum payment after you retire
Your exit strategy should consider your age, financial position, current income, and retirement plans. If there’s any doubt about whether or not you can repay the debt, you may be declined.
Can I combine exit strategies?
You can combine multiple strategies to prove you can comfortably pay off the mortgage when you retire.
For example, you may plan to downsize to a smaller home and also use a lump sum from your super balance to pay off the remaining debt.
What should I avoid with my exit strategy?
Lenders can't discriminate against you based on your age. Still though, lenders must make sure you can comfortably repay the loan without experiencing undue financial hardship.
Some financial avenues may not be reliable enough to be an exit strategy. Here are some examples of strategies that might see a lender asking further questions:
- An anticipated inheritance
- Assumed income or superannuation balances
- An expected bonus payment or wage increase
- The sale of a business
Do I need an exit strategy for an investment loan?
An exit strategy is typically not required for an investment property as you can simply sell the property when you retire. This is assuming you also own a home.
Lenders are required by law to make sure they don’t put you in a worse financial situation and, if your exit strategy consists solely of selling your home, that’s usually considered to risk putting you into financial hardship. So in theory if you own an investment property and still have a home, you're less likely to find yourself in financial difficulty from selling the investment property.
Tips for older home loan borrowers
If you’re an older mortgage borrower, you can improve your chances of being approved for a home loan by:
- Considering a shorter loan term so that the loan is paid out before retirement
- Providing a solid exit strategy if the loan term exceeds your retirement age
- Applying with a lender that’s more flexible for mature borrowers
