Strategies for over 50-year-old borrowers

The strategies you need to know if you are over 50 and want to borrow from the bank.

Could you borrow from a bank?

In 2014, the lending regulator suggested to banks that they think twice before offering loans to people nearing retirement or already retired.

In a practice guide on residential mortgages, the Australian Prudential Regulatory Agency (APRA) advises: “Future changes in a borrower’s circumstances, such as the likely lower income and repayment capacity during the impending retirement of a borrower, would also be considered by a prudent ADI (deposit taking bank). It would be prudent not to rely on the presumption of future superannuation lump sums unless the lump sum is verifiable and reasonably imminent.”

While APRA provides guidelines on how much risk banks should entertain when lending to certain groups, it is up to the lenders themselves to make the final call.

During the banking royal commission, a number of incidences have surfaced of unethical lenders who did make the call to write loans to elderly people who had limited capacity to service a mortgage, unless their house was sold.

No doubt when the royal commission winds up, there will be further calls for banks to think wisely before lending large amounts to those over 60.

Borrowing during your 50s is not as easy as borrowing during your 30s or even 40s, especially if you do not own a home and are considering a 25-year or longer loan. The chances that you will likely not be working beyond 65 or 70 will be taken into account by a lender who rightfully will need to know how you will service your loan after your wage-earning days are over.

One reverse mortgage broker, Seniors First, lists all the top lenders on its site and claims it can help older borrowers and pensioners access funds. However, when YourLifeChoices requested an interview with the broker about the terms of loans on offer to older borrowers some time ago, it was declined.

In 2011, the National Consumer Credit Protection Act made changes to rules on responsible lending to borrowers over the age of 50. This group now has to demonstrate an ‘exit strategy’ for what will happen with the loan when they retire, according to online lender State Custodians.

The organisation said that would-be borrowers had a better chance of obtaining a loan if their exit strategy included the potential to:

  • sell an investment property or other assets
  • earn income or payout from superannuation
  • downsize from their property
  • receive investment or other income that will continue into retirement, such as an annuity.

If you are struggling with your finances and need a smaller amount of money than a traditional mortgage you may be able to receive a personal loan. But beware, these often have high interest rates.

It is worth checking first to see if you qualify for a loan from the Government. According to MoneySmart, the Department of Human Services offers some alternatives:

  • Pension Loans Scheme – If you are a retiree, self-funded or a pensioner, you can use your real estate as security for a loan under this scheme.
  • Advance Payment – You can receive your social security payment in advance if you need some help to cover immediate expenses.

Are you over 50 years of age and wondering if you can borrow from a bank? Have you been turned away by lenders because of your age?

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    COMMENTS

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    Rae
    4th Jul 2018
    11:59am
    Saving and slowly building up an emergency fund is a better idea. Far cheaper and guaranteed. Something everyone can do if they put in the effort and discipline.

    It's crazy to borrow money when you are on a limited retirees income.

    The time to organise savings was during your working life. It's way too late after working is done unless you can somehow create income from effort of some sort.
    Anonymous
    4th Jul 2018
    5:42pm
    Agree!
    HarrysOpinion
    4th Jul 2018
    1:23pm
    Reverse mortgages are the pits but available to the elderly who are desperate. Desperate seniors do not have enough for all the establishment fees, valuation fees and mandatory solicitor fees to vet their agreements, a cost which is paid upfront. Also they are limited on the amount they can borrow, around 40% of market value or something like that. One benefit for those who can is that they can payoff as much of the principle as they can afford to and this way they gain back higher equity of their home ownership. But, at the end of the day it's simply capitulation of ones assets and the real winners are the financiers.
    Anonymous
    4th Jul 2018
    2:06pm
    Better to sell the house than to reverse mortgage
    Rae
    4th Jul 2018
    5:10pm
    I agree with Raphael here. I sold a house I owned outright once at a 35% discount to market price because a bank called in a loan and i could have lost everything. Dealing with banks needs wits and desperate elderly seldom have that at the time.
    Rae
    4th Jul 2018
    5:13pm
    I sold within the 48 hour window I had, in fact I sold within half an hour. I learnt a terrible lot though. As much as the house was worth in fact and I didn't look back. I now tape every conversation I have with a banker, don't deal if they can't make eye contact and never sign anything until both my accountant and solicitor have had a jolly good look at it.
    tams
    4th Jul 2018
    7:17pm
    Hi Olga,'

    I would be pleased to assist with an interview at any time.

    Regards,

    Paul Dwyer
    Reverse Mortgage Finance Solutions