When you consider that the term of a home loan can be as long as 30 years, borrowers over a certain age may not be able to pay off their home loan before they retire. Some lenders have no restrictions when it comes to lending to customers who plan to, or are currently retired – even when the loan term exceeds their retirement age.
But lenders have a responsibility to make sure that anyone they lend to will be able to comfortably pay back the loan, eventually. So with this in mind, the older you are, the trickier you might find it to gain home loan approval.
How old is too old in New Zealand to get a home loan approved?
In 1970, the average age of a first home buyer was 25, but these days it’s far more common to be in your 30s. Lenders in NZ aren’t allowed to discriminate based on age, but still need to make sure their borrowers satisfy the usual lending criteria. This is based on your ability to make timely repayments over the life of your loan. The key factor in your ability to pay off your home loan is your income so, if you’ve already hit retirement or are looking to retire soon, a lender could take a bit more convincing that you’ll be able to repay the sum.
Once you reach 65 or older, it’s harder to gain approval for a home loan. But it’s not impossible. If you’re an older Kiwi and you apply for a home loan, know that the lender will assess your application the same way they would for a 20-year-old or a 40-year-old. Your application can still be approved if you have your finances in order and can demonstrate your ability to repay the loan.
If your loan term extends past your retirement age, banks want to know exactly how you plan to repay the loan after your retirement. 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 some 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.
- Ongoing income from superannuation.
- Using your superannuation to make a lump sum payment after you retire.
The best exit strategies take into account your age, financial position, income level and retirement plans. They are intended to show that you can repay the debt. If there’s any doubt, then you may be declined.
What should I avoid with my exit strategy?
Lenders have a responsibility to ensure that anyone they lend to can comfortably afford to repay the loan without experiencing any undue financial hardship. There are certain things that may not be considered suitable as an exit strategy, as they’re considered unreliable. Here are some examples:
- Anticipated inheritance
- Projected income or superannuation balances
- An anticipated family law settlement
- An anticipated employers bonus payment or wage increase
- The sale of a business
Some lenders may make exceptions and approve people with exit strategies similar to these 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 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 that they do not put you in a worse financial situation, and if your exit strategy consists solely of selling your home, then that’s considered to put you into financial hardship. So, in theory, if you own an investment property, and still have a home, you won’t be in financial difficulty by selling the investment property.
Is there an age that is considered too old for a home loan?
Since we have no forced retirement age in NZ, 65-75 is considered to be the retirement age by most lenders. As a result, people aged over 35 looking to take out a mortgage may need to show that they can repay the home loan before they retire.
All lenders have their own retirement age policy but, generally speaking, this is a guide to what you may expect at various ages.
- 35: Lenders will consider your profession and likely retirement age. Many lenders will shorten your loan term or require an exit strategy.
- 45: You may be required to show superannuation 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 superannuation 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 may 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, you might want a reverse mortgage (retirement equity release loans, which provide cash up-front with no repayment needed until you sell your home, move into a rest home or die). For example, if you retire and have a mortgage-free house, but your superannuation and savings don’t cover purchases you want to make.
What if one of the borrowers is older than the other?
Interestingly, when borrowing as a couple, lenders may use either the age of the youngest, or the oldest borrower when working out if an exit strategy is required. This is when you may need to call lenders to check their policies or enlist the help of a mortgage broker.
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 out before retirement.
- Providing a solid exit strategy if the loan term exceeds your retirement age.
- Applying with a lender that is more flexible for mature borrowers.
As always, it pays to do your homework and research which lenders are more open to lending to mature home buyers.
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