When it comes to applying for a home loan, age matters. And so does your exit strategy!
While banks are generally open to lending to senior borrowers, there are some conditions that you have to meet. Lenders typically require you to provide an exit strategy on your mortgage if you’re closing in on retirement.
This helps lenders meet the responsible lending requirements associated with the National Credit Code.
However, not all exit strategies are accepted. Find out how to craft one that’s acceptable.
What is a mortgage exit strategy?
An exit strategy is effectively a backup mortgage repayment plan.
Technically, all home loans have an exit strategy. It’s paying off the mortgage over 30 years. Lenders require you to provide an exit strategy only when the standard one doesn’t work.
For example, many wharves in Sydney have luxury leasehold units in them. Since they’re over water, they have a 99 year leasehold title instead of a freehold torrens title.
The lease may have only 20 years remaining at the time you buy it. In this case, lenders won’t accept a 30 year loan term. In most cases, the exit strategy is to shorten the loan term to be 5 years shorter than the remaining lease term.
Development loans generally also require exit strategies. A property developer may not afford to keep all of the units when the building is complete. So, the bank accepts an exit strategy of selling some or all of the units.
But banks don’t accept all exit strategies…
Your exit strategy depends on your asset position, income and retirement plans. However, banks may not accept your exit strategy if:
- Your plan is high risk or not realistic.
- It doesn’t meet their policy.
To get around this is simple. You can either prepare a different strategy or apply with another lender. We have access to almost 40 lenders all over Australia. We can help you choose a lender that can agree with your exit strategy.
You can speak with one of our mortgage brokers by calling us on 1300 889 743 or by completing our free online application form.
What’s considered a good mortgage exit strategy?
There’s no such thing as the best strategy! But you can aim to have the best mortgage exit strategy that suits you the most and still acceptable to the lender.
Lenders commonly accept strategies that include:
- Reducing the loan term: This includes making sure your home loan is paid off before you retire. Please note that the retirement age varies from lender to lender.
- Downsizing your property: You can sell your home and move into a smaller property after you retire. However, some lenders may not accept this.
- Using your super fund: You can use a lump sum or ongoing income from your super fund to pay the loan after you retire. Some of our lenders accept a projection of your super and mortgage balance as evidence that you can repay the loan.
If your strategy doesn’t work, it may be better to avoid getting a mortgage. Apply only when you’re sure that you can afford making the mortgage repayments.
Mortgage exit strategy FAQs
Do investment properties need exit strategies?
You actually don’t need an exit strategy on an investment property. This is because you can sell it anytime without financial hardship.
Under the National Consumer Credit Protection (NCCP) act, you’re considered to be in financial hardship only if you can’t pay off a mortgage without selling your home.
However, some lenders don’t approve mortgages for investment properties unless you provide an acceptable exit strategy.
You can speak with a mortgage broker like us if your lender asks for an exit strategy for your investment loan. We’ll help you find a new lender.
What if I own a business?
If you’re a business owner, you may still be earning an income past the normal retirement age. This typically depends on whether or not:
- You’re required to do manual labour.
- You have a succession plan for management.
- It’s reasonable to assume that the business can continue to operate without you.
We can present a case to some of our lenders to show that you can continue to make your mortgage repayments past the normal retirement age.
Who can help me prepare a mortgage exit strategy?
Professionally qualified and experienced mortgage brokers can help you prepare an acceptable exit strategy.
Our mortgage brokers know and understand the policies of the major lenders. They are credit specialists that know which banks have more lenient lending guidelines.
You can call us on 1300 889 743 or complete our free online assessment form and one of us will contact you to discuss your situation and loan needs.