Am I Too Old to Get a Home Loan?

Jennifer Lackersteen
Jul 26
4 min read

An article was released in the major Australian newspapers this week about a 52 year old divorcee who was rejected for a home loan. While there were other factors at play that likely impeded his borrowing potential, the article focused mostly on his age, saying that he was too old to buy a home.

Do I agree with this? Absolutely not!

If you have a Plan B or even a Plan C and currently have a stable income and a deposit, age should not be a barrier.

When applying for a home loan after the age of 45, particularly when purchasing a home to live in, an Exit Strategy is required when applying for a loan that extends past your retirement age. Having a longer loan term of 25 or 30 years increases the affordability for a person to buy a property, so your potential purchase price can be higher than if you limited the loan term to end at your proposed retirement age.

The decision to take out a loan that extends past your retirement age is an important conversation to have with your broker or your bank as it requires a plan as to how you will pay off the remainder of your loan at retirement, or how you can afford to continue your repayments throughout your retirement.

So what would constitute a reasonable Exit Strategy?

Using Your Superannuation to Pay Down Remaining Debt at Retirement

If your superannuation balance will be considerably higher than the home loan debt at your retirement age, then you can make a lump sum payment to pay off your home loan. Most banks are happy to proceed with this strategy on the basis that you will have sufficient funds remaining to use for your retirement.

Downsize Strategy

This is the most common form of exit strategy. This is when you purchase a home to suit your current household needs and are prepared to move to a smaller property at retirement. The difference in price between the sale of your current home and the purchase of a smaller home at retirement will result in being able to pay out the home loan and still have enough cash to buy a smaller home with the remainder of the sale profits.

Sale of Other Assets

If you own an investment property or shares, the exit strategy is selling down the investment to pay out the remainder of your home loan at retirement. Or alternatively the income earned from those investments will cover the mortgage repayments remaining on your home loan.

Examples of Recent Home Loan Clients Having an Exit Strategy

Here are a few of my clients who had home loans recently approved with an Exit Strategy (current property prices are used in the examples below):

· 61 year old first home buyers – They had a 5% deposit and were eligible for the NSW Government Stamp Duty exemption and the Federal Government exemption of lenders mortgage insurance. They had a fully independent child in their early 20s still living at home. They purchased a 3 bedroom townhouse in Penrith for 700K. When they retire they will downsize to a 2 bedroom unit in Penrith for around 400K. If the profit on the sale of their current home does not cover the payout figure of the loan plus buy them their next home for cash, they will use some of their superannuation balance to make up the difference.

· A 56 year old divorcee, having sale proceeds from her divorce settlement, obtained a 700K loan over a 25 year loan term to purchase a house in the Northern Beaches for $2.5Million. If she has not paid off the mortgage by the time she retires she will sell her home and purchase an apartment in the same suburb for $1-1.5million

· A 60 year old sold her home in Merrylands and wanted to move to an apartment closer to the city for a similar price. She took out a 25 year loan for the apartment and when she retires she will use her superannuation to pay down the remaining home loan debt as she has a current superannuation balance which is higher than the new loan amount.

· A 48 year old divorcee wanted to keep the family home she lives in with her teenaged children, requiring a refinance of the existing loan into her sole name. She has a 4 bedroom house in Greystanes, worth approximately $1.8million and with a current loan of 550K. As she moves closer to retirement and the kids have moved out of home she will downsize to an apartment or a villa in the same area and pay for that smaller property in full with the profits made from the sale of her house.

If you are wanting to start again after divorce, or moved to Australia in your 40s or 50s and want to purchase your first home here or if you have decided to buy your first home later in life, give me a call on 0414670151 or email me at Jennifer@jblhomeloans.com.au to discuss your home buying options.