When you borrow money for residential property the lender needs to know that you can honour your loan contract which can be for as long as 30 years. But what do you do when you don’t plan on being in the paid workforce for the next 30 years, or you’re at retirement age inside the next 10 years?
Let’s take a look at two different scenario’s; the first being you’d like to buy an owner occupied home and the second is if you’d like to buy an additional investment property. Two scenarios with two different outcomes
Buying an Owner Occupier – how old is too old?
There are a number of variables with this question, like how do you propose to extinguish the debt once you retire? Will your retirement income be sufficient to service the loans? Do you have enough superannuation to extinguish the bulk of the debt? Do you have other assets like shares that you can sell? If you do not have assets that will be released or others that you can liquidate to extinguish the debt, or a reoccurring income at retirement that will service the residual debt, then the loan term will need to be reduced to match your retirement age of 65. Yes that means if you’re 57 now, you can only get a loan term of 8 years. The size of the loan and your ability to repay will determine how much you can borrow. But in essence the loan needs to be finalised by the time you reach age 65 if you cannot show evidence of a reoccurring income that will service the debt post 65.
Side note: This policy is relatively new. It has stemmed from the GFC and banks being satisfied that the borrower will not be put into financial hardship by something that they may know when taking out their loan. And we all know that 65 is retirement age so hence why your loan term may be reduced to match.
Buying an additional investment property – how old is too old?
This is much easier to answer and is less restrictive during the approval process.
So using our example of being 57 and wanting to purchase an additional investment property, the lender will still ask how you intend on extinguishing the debt once you step out of the paid workforce. All of the above questions are asked, but you have one extra answer in your quiver and that is you can always sell the investment property to finalise the loan!
This means the bank will often grant you a 30 year term loan, which if you understand term loans means it is set and forget and never reviewed. So as long as you feel you can afford the property post paid employment, you can keep the property. There is no condition to sell or finalise the loans at 65.
So in essence as long as you’re adding a property to your portfolio and can show evidence of being able to service the debt today there is no age restriction when buying an additional property.
If you have any further questions about either scenario, please Click To Contact Us HERE.
About the Author
Since 2008, David Thomas has built a business aimed at servicing the needs of property investors, owner occupiers and small business owners. David is recognised as one of the top 10 independent mortgage brokerages in the country, David and his team have settled almost billions of dollars worth of residential and investment loans over the last decade.
Known for his straightforward, relatable style, David believes by educating people about property funding; they fare better in the market. By sharing his expertise openly, some of the people he educates will likely become his clients. It's a win-win approach.
David Thomas is a credit representative (Representative Number 506153) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237).