Getting a mortgage in the later years of your career can be difficult, especially after a divorce. But it is possible.
If you’ve ever researched a home loan, you may have noticed that lenders tend to assume a 30-year loan term when announcing estimated monthly repayments.
However, for many Australians, the 30-year mortgage default is unrealistic as it typically assumes you have 30 years of full-time work to pay off your loan and own your home before retirement.
For someone like Amanda Gillard, 56, accessing homeownership after divorce as a mature borrower has led to many nights of research on how to pay off a mortgage before retirement.
After her divorce, Ms Gillard found herself without up-to-date qualifications, an unfinished degree that had run out of time and no start-up money for a business (Photo provided)
Speaking to Savings.com.au, Ms Gillard said there is little information on small home loans with shorter repayment terms for properties like studios and small apartments.
“It was difficult to find information on small loans such as a $120,000 loan – an online calculator wouldn’t even accept prices below $250,000,” she said.
“The second shock was when a real estate agent showed me a property and suggested that a bank was unlikely to lend on a property under 50 square meters.
“There seems to be a bit of a void in the councils that don’t earn mortgage brokers high sales commissions.”
Ms Gillard said she was afraid to rent indefinitely.
“Living on an old-age pension in rental properties is a recipe for poverty and it scared me terribly,” she said.
What do lenders consider a “mature borrower”?
According to Caroline Jean-Baptiste, Mortgage Choice broker, a home loan is usually taken out for 30 years and lenders expect home loans to be paid off before the age of 67.
“Even up to the age of 38, you can still comfortably repay the loan without anything changing much, you don’t count on salary increases or anything like that,” Ms Jean-Baptiste said. .
“But there are things lenders take into consideration when a mature borrower applies for a loan, such as the ability to repay the loan, a reasonable working life and an exit strategy.
“For example, lenders often won’t lend to a borrower whose loan end age is 80, because it’s unlikely you’ll still be working at 75.
“So you may need to take out a shorter-term loan depending on the style of work you find yourself in.”
What is an exit strategy?
According to Ms. Jean-Baptiste, an exit strategy is essentially a plan for how you are going to repay the loan.
“Let’s say you’re a 35-year-old male applying for a 30-year loan, your exit strategy would be to repay the loan within the term of the loan,” she said.
“So it’s not really factored in because you get a loan term that’s reasonable in working life.
But if it’s likely that you’ll retire before the end of the loan term, the lender will carefully consider your exit strategy.
Ms. Jean-Baptiste explained a few ways to satisfy a lender when you prove you can repay your loan in retirement.
If you’ve managed to save super throughout your working life, using your super to pay off the loan in installments or in a lump sum can be a viable exit strategy.
“You may be able to use the ongoing income from your superannuation or use a lump sum from your superannuation when you retire,” Ms. Jean-Baptiste said.
“Now, if you have virtually no superannuation, that won’t be a solid additional strategy, because the bank won’t expect all of your superannuation to be used to pay off the mortgage.”
“Downsizing is often another exit strategy a lender will consider,” Ms. Jean-Baptiste said.
“Let’s say you still have dependent children and need a bigger house near schools or in a better neighborhood, but the loan you take out might not be realistic to repay in your working life.
“If, for example, you buy a $1.2 million property, you probably won’t need a house that size when you retire.
“So some lenders consider the downsizing strategy to be quite reasonable for you to take a 30-year loan.
“Say you’re really only seven [till retirement]but you have $700,000 in equity, you can downsize to a $700,000 apartment or townhouse, or even a house somewhere else.
What is the minimum size of a property to obtain a mortgage?
For those looking to secure a home, but can’t afford to buy a house and land, studio apartments can make a great low-maintenance home until retirement.
However, as Ms. Gillard discovered, many lenders have a minimum square footage they need to approve a home loan.
“I felt encouraged that a 35 square meter studio downtown was affordable at $180,000 and would make a nice little nest to retire to, so I was devastated to hear that” , she said.
Lenders such as Macquarie and NAB require a minimum floor plan area of 50m2.
For many lenders, this will also exclude balconies or car spaces, so be sure to research each lender’s requirements.
See more : Guide to minimum lender square footage
How to apply for a small home loan
Ms Gillard said more qualified information about small home loans would save a lot of stress from the tsunami of women like her – the possible ‘hidden’ and ‘almost homeless’ people of the future.
“With a decent down payment, say 30%, repayments for a studio in town or a unit in a regional town over 15 years – with a little extra on the way out – could be similar to market rental rates current, even taking into account bodywork/ strata, consulting and utilities I think this knowledge would calm many minds and give some hope.
If you are trying to break into the housing market after a divorce, migrating to Australia or as a mature borrower, there are ways to break into the housing market.
Based on her experience, Ms. Gillard said more than anything, getting started is important.
“Start planning now. Look at the properties that might be in your ballpark and work backwards: ‘How much do I need to earn to make repayments on this little nest?’ – you might be able to pursue a little work extra on the side to increase your income to an acceptable level,” she said.
“Do your homework and seek advice from someone in the industry – although I’m still looking for that mystical person who has all the answers.
“Don’t be put off by media reports,” Ms Gillard said – do your own homework, get out your calculator and stay on top of your money. Waiting for the answers to come to you is not a plan – go find them.
In the text IMagi by Grace Ferrentino
Hero image by Hutomo Abrianto via Unsplash