How to get a mortgage in your 50s
Applying for a loan in mid-life can be fraught with challenges.
Prepare yourself for the inevitable by learning how banks assess mature applicants and what you can do to improve your chances.
Here, two experts share their hard-won knowledge on how to approach home loans in middle age.
1. What's the difference between applying for a mortgage in your 30s compared with your 50s?
By Kellie Cowie
As a person matures, lenders shift their focus and begin to have a heightened awareness that the applicant is approaching retirement age which, from the lender's perspective, impacts
a customer's ability to earn an income and therefore repay a home loan.
Unfortunately, this means that not all lenders have an appetite for mature-age clients. This makes finding the right lender imperative. Finding the right fit and pre-empting possible pain points can ensure an application for a 50-plus person's home can pass smoothly through a lender's assessment.
That said, there are many lenders that love a mature-age applicant, as long as they can demonstrate how they plan to repay the loan before retirement - that is, they need an exit strategy to show they will have this loan repaid, in full, before their income stops.
Having a continuing source of income (post-retirement) or assets that can be sold without causing financial hardship is the key to a successful application for this age group.
Factors that impact an application include whether the person plans to buy a property to live in or as an investment and what other assets they have to help support them with an income beyond retirement or to allow the loan to be paid out when income ceases.
2. So, how is the loan-approval process different if you're in your 50s?
By Kellie Cowie
It comes down to more planning and a whole lot of consideration. The lender will want to understand an applicant's situation and how they plan to repay the home loan before retirement. The exit strategy can be fulfilled with a well-thought-out explanation.
Will the client sell down assets (such as superannuation or an investment) to repay the debt or will they have continuing income from an investment portfolio post-retirement to help with repayments?
Another way an applicant can mitigate reservations by the lender based on age is to apply for a home loan with a reduced term to align with their retirement age. Of course, the downside of this is an increase in the repayment amounts, due to the shortened loan term.
All lenders have different policies, but a person's occupation may also impact a loan application, depending on the physicality of their job and whether it is sustainable into their 60s, 70s and 80s.
They may check how this aligns with the loan term selected. Again, planning and pre-empting this possible challenge is vital.
3. Do you have any tips for a person who wants to begin saving now to buy a property in their 50s?
By Kellie Cowie
The most important step is to seek help early. That way a selected professional (a financial adviser, mortgage broker or tax accountant) can be a guide throughout the process as well as help establish a personalised plan based on the person's goals.
The most useful advice for buying a property applies to all age groups, and includes: reducing discretionary spending; reducing credit card limits; closing other loan facilities; increasing income with a side hustle; and sticking to a budget. For those of a mature age, the main way to plan ahead for retirement is to ensure they have a way to clear the home loan debt before the income stops.
4. Should clients aged 50 years and older apply for the usual 30-year loan or shorter?
By Helen Nan
I wouldn't recommend paying off the mortgage right up to retirement, as that can be challenging to manage.
Instead, I often suggest paying off the mortgage using their superannuation balance when they retire or increasing the frequency and/or amount of repayments to pay it off quicker. This approach allows them to enjoy their family home without the financial stress of a mortgage in their retirement years.
5. When it comes to investment and/or passive income, is a share portfolio a better alternative to a property investment?
By Helen Nan
When considering an investment for generating passive income or building wealth, it's important to assess both the type of investment and its structure.
The structure of the investment is like the house and the investment option is like the furniture in that house. For people in their 50s, superannuation is often considered one of the best structures to hold their investments. This is because it can provide tax-free income once they reach the age of 60.
When it comes to choosing between shares and property as investment options, several factors come into play. Clients' needs and their familiarity with a particular type of investment are key considerations. For instance, if clients have substantial experience and knowledge in property investing and they understand the market and strategies involved, that can be a viable option for them.
In Australia, however, the average person tends to purchase only one or two properties in their lifetime.
This limited exposure and experience in property investing can sometimes make it challenging to make well-informed decisions.
On the other hand, shares offer a different avenue for investment. Investing directly carries more risk compared with investing in managed funds or exchange traded funds. However, share portfolios and managed investments provide greater flexibility for buying and selling, and they often come with lower entry costs.
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