KEY POINTS:
- The closer you get to retirement age, the more difficult it becomes to gain approval for a mortgage.
- As a mature person, to improve your chances of securing a mortgage, you’ll need to provide lenders with documented proof of your ability to repay the mortgage.
Standard home-loan terms range between 20 and 30 years. This is fine if you’re in your 20s or 30s, but the closer you get to retirement age, the more evidence a lender will require that you’ll be able to meet your repayments.
How old is too old for home loan approval?
Ultimately, when approving a mortgage, lenders will look at the applicant’s ability to repay the loan.
This means that if you’re approaching the standard age of retirement in New Zealand (65), and your loan term extends past this date, a lender will want to know how you plan to repay your loan.
This is known as an exit strategy, and it maps out how you expect to pay off your home loan without facing financial hardship.
What are common exit strategies?
Some commonly accepted exit strategies include:
- Downsizing your property by selling your home and moving into a smaller property
- Selling assets, such as an investment property or shares
- Using your KiwiSaver to make a lump sum repayment after you retire
- Ongoing retirement income, such as from investments, rental properties, NZ Super or KiwiSaver
The best exit strategies take into account your age, financial position, income level and retirement plans. If there’s any doubt about your ability to repay the mortgage, then your loan application could be declined.
What should I avoid with an exit strategy?
Exit strategies that rely on speculative cash windfalls are considered unreliable, for example money from:
- Anticipated inheritance
- Projected income or KiwiSaver balances
- Future bonuses or wage increases
- The sale of a business
However, some lenders may make exceptions and approve mortgages to people with speculative exit strategies if they can provide solid evidence that appropriate funds will be forthcoming.
Do I need an exit strategy for an investment property loan?
An exit strategy is less important when applying for a mortgage for an investment property, as a borrower can sell the property when they retire.
Is there an age that is considered too old for a home loan?
In New Zealand, most lenders consider the retirement age to be between 65-75. As a result, people aged over 40 looking to take out a long-term mortgage may need to show that they have definite plans in place to repay the home loan before they retire.
Requirements vary between lenders but, generally, this is what you can expect when applying for a mortgage at a mature age:
- 45: you may be required to show KiwiSaver statements or demonstrate that you have an exit strategy in place to repay the loan when you retire
- 50: most lenders will allow you to borrow, but some may decline your application due to your age
- 55: almost all lenders will require a written exit strategy, evidence of your KiwiSaver and other assets that can be sold to repay the proposed debt
- 60: most banks are likely to decline your application due to your age. However, if you’ve got a continuing source of income past retirement, or have assets you can sell to help repay the loan, then your loan could be approved
- 60-plus: you’ll only be able to borrow money with a standard loan if you can prove an ongoing post-retirement income, or substantial assets
What if one of the borrowers is older than the other?
When borrowing as a couple, lenders may use either the age of the youngest, or the oldest borrower when calculating if an exit strategy is required.
Tips for mature borrowers
If you’re a mature 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 off before retirement
- Providing a solid exit strategy if the loan term exceeds your retirement age
- Applying with a mortgage provider, such as a non-bank lender, that is more flexible about lending to mature borrowers
As always, it pays to do your homework, talk to mortgage experts and research which lenders are more open to lending to mature home buyers.
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About the author of this page
In his role at Canstar, he has been a regular commentator in the NZ media, including on the Driven, Stuff and One Roof websites, the NZ Herald, Radio NZ, and Newstalk ZB.
Away from Canstar, Bruce creates puzzles for magazines and newspapers, including Woman’s Day and New Idea. He is also the co-author of the murder-mystery book 5 Minute Murder.
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