As we get older, there are a few things to consider as we climb the property ladder, or put our foot on the first rung. It is proving harder and harder to enter the property market in the first place. In general, people are now older at each stage of the property lifecycle if you compared them to clients 10 or 20 years ago. Back then, you were entering the property market in your early twenties as an example, whereas now it is more like your early thirties for a new home. The consequence of this is that with a standard loan term of 30 years, people are finding that they are approaching or going over into retirement while they still have a way to go on their loan term.
Post royal banking commission, a lot more focus is going into a client’s long term future position, and rightly so. In the past, you may have finally found your forever home, let’s say a nice four-bedroom, two-bathroom house that is where you want to spend the rest of your days. You and your partner are both 45, and to afford the mortgage, you need to take it over thirty years. At the time, the retirement age would have been 65. An acceptable exit strategy may have been that you will use your Superannuation to pay off the mortgage balance, or you will work to 75 years of age, and that would have been acceptable. Loan approved and move on.
As you would imagine, though, when it did finally come to retiring and said clients did need to use their super to repay the loan balance, there was not much left to live on. Using up their super has put the clients in financial stress and may cause them to have to sell their property.
As we said, we are now a lot older when purchasing the same property as our clients above. And even though retirement ages are starting to push out a bit, lenders are now scrutinizing these loans a lot harder. I thought I would go through a few things to keep in mind when considering a mortgage at an advanced age.
An exit strategy is key. As it was 10 or 20 years ago, how you will handle the situation when you finally hang up your working boots is still key. One of the main differences now is that instead of a short letter of explanation and a nod and a wink to the bank manager, you now need to be able to back your exit strategy up with proof.
So let’s go the first example your exit strategy is to work past the now new retirement age of 75 for an extra let us say five years until your loan is paid off. If your job was a stonemason or manual labourer, for instance, where your job has a hard toll on the body, the prospect of a lender accepting that as an exit strategy is low. Were you a professional who had an office-based job that could be done as long as the mind stayed sharp, the prospect of this getting through would be a lot better. If your spouse or co-applicant were ten years younger than you, some lenders would also accept this loan if their earnings were considered enough to carry the loan when you did retire. As you can see, a lot more thought is going into making sure you are ok in your later years.
Paying off the remaining mortgage with a Superannuation lump sum payment at retirement may also be acceptable, as long as you can demonstrate there will be enough of that super left to live off comfortably. A good Mortgage Broker Adelaide will be able to supply the lender with Superannuation amortization forecasts that he has obtained from your super fund as well as model the loan amortization for the assessor on the loan to make an informed decision. A case such as this it would be essential for clients to get financial advice from a professional to ascertain what they would need income-wise in retirement. Many lenders will also need a signed certificate that you have seen a financial advisor to cover that base off.
If you are a self-funded retiree and your income in retirement services the mortgage, as long as you can back this up with the appropriate paperwork, this should be an acceptable exit strategy.
Downsizing, this was always quite an accepted exit strategy, however, it is pretty hard to draw a line as to what is an acceptable size home in retirement and how low you can go with the purchase price. Of late what I have found unless you are living in a mansion that is way too big for you, or your home is in the higher echelons of the home value brackets, downsizing of your owner-occupied property is generally not accepted anymore.
The sale of a sizable asset or a business at retirement can also be used as an appropriate strategy. In the business case, you would need to get it professionally valued. However, not all lenders accept this, so it is a good idea to run this past your friendly Mortgage broker in Adelaide.
When it comes to investment properties, banks are a lot more liberal with the acceptance of exit strategies. I have had clients that are almost 70 purchase their first investment property on the advice of their financial planner. The reason for this is that if at retirement you owe nothing on your owner-occupied home and your living expenses are covered, an investment property can always be sold. You will still have a place to live in and money to live off. So as long as the lender can ascertain that you are not going to have a loan to pay off after the investment property is sold, you would normally have quite a strong case to have the mortgage accepted.
Things to note are that there are many different scenarios when applying for a mortgage, especially when one is older. Very seldom is one mortgage the same as another, and as always, standard lending criteria apply when applying for a loan. This is an opinion piece from me and at no time should be taken as financial advice, the info is general and is what I see in my dealings as a Mortgage broker. I would always strongly suggest that you go and see an Adelaide Mortgage broker such as us when you are considering getting a mortgage. If you would like to have a chat about your specific scenario, please get in touch.