Loans for over 55's: how does my age affect the terms of my loan?

Can home loan borrowers over 55 years of age qualify for a standard home loan with standard length repayment terms of 25 or 30 years? Yes, and No, read on for more.

In the past banks were mostly happy to rely on a person’s current income when assessing the affordability of a home loan regardless of their age. However, with the advent of responsible lending regulations lenders have had to take a closer look at how borrowers will manage their loans when they are getting close to retirement age. This is defined differently by different lenders but anyone 55 years or older wanting to borrow to buy a home to live in will face a more stringent loan assessment.

In essence lenders are being held more accountable for their lending decision even if its years after they made them. While this new conservatism is good in theory and while I agree that some people are unrealistic in their retirement planning it means in practice many slightly older borrowers are being discriminated against. A quick note of clarification…if you already own an owner occupied property and are looking to borrow to invest in property this discrimination wouldn’t apply to you. However, if it’s an owner occupied property you’re trying to purchase and you are of a certain age it can be quite difficult to navigate.

The first thing needed when applying for this kind of loan is a loan is an exit strategy. This essentially is a written plan done in consultation with an accountant or financial planner detailing how debt will be repaid without hardship as borrower approaches retirement age. Without an exit strategy, loan terms cannot exceed the expected age of retirement. Retirement age is different for different lenders but is usually defined as between 70-75 if not specified as earlier by borrower.

Lenders also have retirements rules that offer variations to these general guidelines such as taking the youngest of the couple to define if you are approaching retirement regardless of who earning the income.

If you think you may be impacted by these rules give Marty a call to have a frank discussion about your options. We can usually assist if the loan makes “sense” and there is a legitimate exit strategy.