How to increase your chances of approval
When you apply for a home loan, banks and non-bank lenders impose a range of lending criteria that you must meet before you can qualify for financing. These include a stable income, proof of genuine savings, a good credit history and minimal debt.
But what about age? Are there any restrictions on the age at which you can take out a home loan? And what effect does age have on your borrowing power? Let’s take a closer look.
What is the maximum home loan age?
There’s no widely accepted maximum age limit at which you can qualify for a home loan. Australia’s anti-discrimination legislation, namely the Age Discrimination Act 2004 and National Consumer Credit Protection Act 2009, prevents lenders from discriminating against mortgage applicants due to their age.
However, lenders also have a responsibility to ensure that anyone they lend to can comfortably afford to repay the loan without experiencing any undue financial hardships. With this in mind, the older you are, the more difficult you might find it to obtain home loan approval.
In the past, Australian lenders did not place any age limits on their mortgages. But in the past couple of years a small number of lenders, including Bank of Queensland and loans.com.au, have introduced age limits on some of their home loans. Where maximum age limits apply, they typically range from 65 to 75 years.
Why are lenders reluctant to lend to older borrowers?
Lenders are not allowed to discriminate based on age but still need to make sure you satisfy the usual lending criteria. This is based on your capacity to make timely repayments over the life of your loan. The most important factor in your ability to pay off a home loan is the income you earn, so if you’ve already retired or planning on retiring in the next few years, it will take some work to convince the lender that you will be able to service the loan.
The lender also needs to be certain that you will be able to pay the loan off. When you consider that the typical term of a home loan is 30 years, a 65-year-old applicant could potentially be within sight of their 100th birthday before they’ve paid off their loan - and this could present an unacceptable level of risk to the lender.
If you’re an older Australian and you apply for a home loan, the lender will assess your application in the same way they would for an application from an 18-year-old or a 38-year-old. If you have your finances in order and can demonstrate your ability to repay the loan, your application can be approved.
But once you reach 65 years of age or older, obtaining mortgage approval grows increasingly more difficult.
How to get your loan application approved
While it is more difficult for older Australians to get home loan approval, it’s certainly not impossible. Keep the tips and advice below in mind to help maximise your chances of having your mortgage application approved:
- Exit strategy. Lenders often require older borrowers to supply a home loan exit strategy, which basically outlines what will happen to the home loan when you retire. In addition to the usual information required in the application process – income, assets, liabilities etc – you will also need to show how you will continue to pay off your loan during retirement. For example, you may need to sell an investment property to finance your loan repayments.
- Minimise debt. The amount of debt you have is a crucial factor a lender will take into account when assessing your loan application. Pay down existing debt before you apply to increase your chances of approval.
- Save a bigger deposit. The more money you have saved, the more money the bank will be willing to let you borrow. If you can display proof of genuine savings and regular financial discipline, your borrowing power will increase.
- Sort out your credit history. Are there any black marks on your credit file? Improving your credit history can drastically improve your chances of obtaining home loan approval, so find out what you need to do to increase your credit rating.
- Provide more financial evidence. If you’ve successfully repaid a previous mortgage, including this in your application will show that you’re a reliable borrower. A sizable superannuation balance can also help to convince a lender that you don’t pose an unacceptable lending risk.
- Ask an expert. The most important piece of advice for older Australians hunting for a home loan is to ask a mortgage broker for help. A broker will be able to help you find the lender and loan most suitable for your needs, and can offer advice and assistance on how you can put together the best possible loan application.