Is there an age limit to getting a loan?
The success of a loan application is largely based on your ability to be able to repay the loan using your current income. So what does this mean if you are planning to retire or already retired? Will you still be able to secure a home loan in retirement?
The first thing that lenders look at, regardless of the applicant’s age, is your ability to meet the loan repayments – your serviceability guarantee. If you are about to retire or already retired, your income is likely to go through significant changes – i.e. starting to draw a pension instead of earning a salary. This will mean that lenders will want to look at all of your income sources combined, such as your superannuation/pension income stream and any rental or investment income that may be applicable.
The next things that lenders will look at, are factors such as your credit history, the deposit amount, and the security you are offering. The better your past credit history and the higher the deposit amount is, the more likely you are to be approved for a loan. However, even with a good credit history, a large deposit and plenty of security, there is still no guarantee that the loan will be approved without a serviceability guarantee.
There are two main reasons as to why lenders want to see that there will be adequate income post-retirement. The first reason is to protect you from financial stress and pressure, and the second, and most important reason, is to avoid risk for themselves and their shareholders.
If you are unable to provide evidence to the lender of your ability to repay the loan, there are other things that lenders will consider instead, such as; an overall exit strategy. Having an overall exit strategy in place means that if you were unable to make the loan repayments when you retire, you will still be able to repay the loan. This could be done by selling off assets including property, shares or superannuation assets. In this case, the lender will want to know when you plan to retire and the estimated value of your assets at that time.
However, some lenders will be cautious about considering using superannuation assets as an exit strategy. This is because your superannuation funds are supposed to be covering your living expenses in retirement – not to pay off debts. Unless your superannuation holdings are significantly large, using your superannuation assets as security for a loan shouldn’t be considered.
When applying for a loan close to or in your retirement, it is important to remember that your income sources are vastly different from those of a younger applicant’s, which is why your application will be considered very differently.