Had no idea of this in 2012 but it has solved another unresolved mystery...
Lenders insist on loan exit strategy
- by: staff writers
- From: The Sunday Mail (Qld)
- May 06, 2012
BORROWERS over the age of 50 are increasingly being asked to show they would intend to pay off their debts before they can get home or investment loans.
According to Smartline Personal Mortgage Advisers, off the back of responsible lending requirements associated with the National Credit Code that came into effect earlier this year, lenders want evidence of how the borrower will pay out the loan on retirement or death.
Smartline managing director Chris Acret says the previously widely used strategy of simply selling the property to pay out remaining debt was no longer acceptable to lenders.
"A borrower's overall financial position is coming into play a lot more for those aged over 50 looking to borrow to buy their own home or an investment property," Mr Acret said.
"Lenders want to see there is a comfortable level of surplus funds to ensure the debt can be paid out."
This involves outlining an explicit strategy for paying out the debt - for example, what assets are available, such as superannuation, shares or equity in other properties.
It might also involve explaining when the borrower plans to move from full-time to part-time work, or when they plan to retire completely.
For example, a 52-year-old nurse might explain in his application for a $300,000 loan that he has $300,000 in super and plans to work full-time until he is 65 and then move to part-time work for five years.
Or a 55-year-old manager might explain that she has an investment property in addition to the owner-occupier property she is looking to purchase with a $250,000 loan. The investment property was purchased 15 years ago for $100,000 and is now worth $350,000. The investment property will be sold upon retirement, the $80,000 debt on the investment property cleared and surplus funds put into paying off the home loan.
"A high level of detail is needed to give the banks the comfort to lend to this age group," Mr Acret said.