If you are over 50 and want to borrow money for a mortgage or other major purchase, you might expect that lenders will want you to jump through more hoops than younger borrowers. While lenders will not discriminate based purely on age, it is true that there are certain qualification criteria that may naturally be increasingly more difficult to satisfy as you get older.
So, what is it that lenders will be looking for and what can you do to improve your chances? Here are a few pointers that may help.
The loan term is a critical factor
The most obvious factor that any lender must take into account is how long a potential borrower will remain working to earn an income. For borrowers over 50, a lender will naturally be asking themselves “how long will this person continue to be in the workforce?”
If a borrower is aged 55, requires a loan term of 30 years, and is using employment income to service the loan repayments, then the simple math tells us that the borrower will need to work until age 85. In assessing such a loan request, a lender will need to consider the borrower's realistic working life.
This may depend, among other things, on the type of work they do. For example, someone in a sedentary professional occupation, such as an accountant, may reasonably be expected to be able to work longer in life than someone doing manual labour.
What if the term is too long?
If a lender considers that the loan term you require is unrealistic in relation to your projected working life, all is not necessarily lost. The lender may consider an alternative “exit strategy” for your loan, such as paying out the balance down the track using other assets that could be liquidated at that time. This could include items such as:
- Investment properties
By fully disclosing such assets, you will give the lender the opportunity to consider their value in assessing the loan application.
Improve your chances
Apart from loan term considerations, there are a variety of other issues that will impact your chance of a successful application.
It’s always beneficial if you are able to contribute a substantial deposit toward the home or the item you are purchasing. Having significant equity in assets may also boost your chances.
A healthy repayment record for servicing existing or previous loans is also a big tick for lenders. It may be worth accessing your credit report to make sure there are no inaccuracies on your record.
Keeping your finances in shape by following a budget, demonstrating a regular savings pattern, and prioritising the repayment of high interest debts are all sound habits that will help build a picture for the lender that you are a responsible borrower.
Your super assets and the retirement income that will generate is another important factor. That being said, be aware that lenders will also consider what will happen to your estate if you are to pass away. While your intentions may be to service a loan out of a private superannuation pension, some lenders will not want to get tangled up in estate negotiations if your assets are passed on via inheritance to other parties.
* This information is provided as a general guide and is not to be reproduced or relied upon — all lenders will assess loan applications based on their own specific lending policy.
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This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this information, you should assess your own circumstances or seek advice from a financial planner and seek tax advice from a registered tax agent. Information is current at the date of issue and may change. WYZA Money is a partner of RFE Group Pty Ltd.