Over 50s need home loan ‘exit strategy’
Borrowers over the age of 50 are increasingly being asked to have a loan exit strategy in place – on home and investment loans – to secure finance from lenders.
As a result of ‘responsible lending’ requirements associated with the National Credit Code that came into effect in 2011, lenders want to see how you plan to pay out the loan.
What does this mean for you?
Once upon a time the strategy was to simply sell a property to pay out the remaining debt, but that’s no longer acceptable to lenders who want to see a borrower’s asset position, versus liabilities, and how the loan will be paid out once they retire or on their death.
In short, lenders want to see that there is a comfortable level of funds available to ensure the debt can be paid out, and this involves outlining a clear strategy for paying out the debt. For example, stating what assets are available – such as superannuation, shares or equity in other properties – to help pay off the debt if needed.
It might also involve explaining when you plan to move from full-time to part-time work, or when you plan to retire completely.
Here are a couple of examples:
A 52-year-old nurse might explain in her application for a $300,000 loan that she has $300,000 in super and plans to work full-time until she is 65 and then move to part-time work for five years.
Or a 55-year-old manager might explain that he has an investment property in addition to the owner-occupier property he is looking to purchase with a $250,000 loan. The investment property was purchased 15 years ago for $100,000 and is now worth $350,000. The investment property will be sold upon retirement, the $80,000 debt on the investment property will be cleared and surplus funds put into paying off the home loan.
Lenders need to see a high level of detail in loan applications.
If we, for example, look at a 55-year-old tradesperson, it’s unlikely they’ll still be in that type of role when they’re 70, compared with a person in a less physically demanding role. If that’s the case, lenders will want to know what resources they will have available in 15 years’ time.
Likewise, if a borrower identifies a particular property as the means for paying off the loan debt, the lender will want to know about the property: what type of property it is, where it’s located, and the sales history of that area.
A Mortgage Choice broker can help
This situation for over-50s highlights the difficulties in dealing direct with a bank to secure a home loan.
The old saying ‘you only get one chance to make a good first impression’ is very true when dealing with lenders these days.
It’s all about having someone in your corner who understands how the lenders work, and who can do all the legwork for you in putting together a quality application.
