Lucy and John contacted our office as they wanted to upgrade from their current home. They were 58 and 62, still working and in good health. “Are we too old to increase our home loan?” They asked. “We need a bigger home closer to town as the kids are older now, but still living at home while going to university”. They had a mortgage, but it would need to be increased to pay for the upgrade.
Banks and lenders like to make sure that they aren’t getting you into a debt that you won’t be able to repay in retirement. When is retirement? Well, that’s a grey area isn’t it? (Excuse the pun!) In our industry we talk about a clients ‘exit strategy’. An exit strategy is basically an explanation to the bank as to how you will afford a mortgage, or pay out your mortgage when you retire. Exit strategies are particularly important for clients approaching retirement age yet still requiring a thirty year home loan term for affordability reasons. If you want a 30 year loan term and you will be 92 at the end of it, we will need to sell the bank your ‘exit strategy’.
We spoke to Lucy and John about their plans for this. “How much longer do you plan to work for?”
“Well, we both feel we want to work for at least another ten years each, but we still want a 30 year loan term because we have an investment property we will sell to pay off all our home loans at that time” said John. Furthermore, we realised that they would have substantially more invested in super after ten years working. We diarised all of this for our credit officer so that they would be able to see how the client could still justify a thirty year loan term.
Of course, it’s not that simple for everyone. Some clients don’t have assets or super to lean on and will need to seriously consider a shorter loan term in order to obtain approval.
Many clients do not have a financial plan laid out, and only a basic understanding of what assets they hope to have in place when they retire. In order to find out how much you can borrow now, and plan for your future, why not see one of our mortgage brokers and our financial planner to work out a plan for your future?
Banks and lenders like to make sure that they aren’t getting you into a debt that you won’t be able to repay in retirement. When is retirement? Well, that’s a grey area isn’t it? (Excuse the pun!) In our industry we talk about a clients ‘exit strategy’. An exit strategy is basically an explanation to the bank as to how you will afford a mortgage, or pay out your mortgage when you retire. Exit strategies are particularly important for clients approaching retirement age yet still requiring a thirty year home loan term for affordability reasons. If you want a 30 year loan term and you will be 92 at the end of it, we will need to sell the bank your ‘exit strategy’.
We spoke to Lucy and John about their plans for this. “How much longer do you plan to work for?”
“Well, we both feel we want to work for at least another ten years each, but we still want a 30 year loan term because we have an investment property we will sell to pay off all our home loans at that time” said John. Furthermore, we realised that they would have substantially more invested in super after ten years working. We diarised all of this for our credit officer so that they would be able to see how the client could still justify a thirty year loan term.
Of course, it’s not that simple for everyone. Some clients don’t have assets or super to lean on and will need to seriously consider a shorter loan term in order to obtain approval.
Many clients do not have a financial plan laid out, and only a basic understanding of what assets they hope to have in place when they retire. In order to find out how much you can borrow now, and plan for your future, why not see one of our mortgage brokers and our financial planner to work out a plan for your future?
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