Posted by John Doe
If you are looking to buy a home, but are over 40 years old, you may be wondering if lenders will be less likely to approve your mortgage application.
For homebuyers who are a little older, it’s important to know that a lender cannot deny you a mortgage based on your age. However, your age will play a part in how the mortgage is calculated.
Mature homebuyers should seriously consider all their options, especially if retirement is not that far away. There are different types of mortgages, so you should be able to find one that will work for you, but it will take a little extra effort.
What is a mortgage rate?
A mortgage rate is the amount of interest you will be charged for the duration of the loan. It’s often expressed as a percentage. There are two types of mortgage rates:
Here, the interest rate stays the same for the term of the mortgage. However, it can be renegotiated at the time your mortgage is up for renewal. This is the most common type of mortgage rate that lenders offer.
This interest rate changes depending on the benchmark rate. The monthly amount you pay for the loan will stay the same, but the amount of interest you’re charged each month will fluctuate.
What does age have to do with it?
One of the biggest challenges to getting a mortgage if you are a little older is income level. If you are just a few years away from retirement, your income is likely to change. That raises the question of how much you’ll be able to afford to pay in monthly mortgage payments.
Your income is one of the important considerations that lenders look at when deciding on the mortgage rate to offer you. Another factor is the loan-to-value ratio. If you are nearing retirement, your loan-to-value ratio may not be as favourable as you’d expect. This ratio is how much the home will sell for and how much you borrowed. If you have a high loan-to-value ratio, you are likely to be charged higher interest rates.
Remember that lenders don’t like to take risks with their money. That means most mortgages are taken out and paid back over about 20–30 years. So, if you are 65 or older, it’s not guaranteed that you’ll be able to pay back the total mortgage.
Before you decide on a mortgage, it is important to consider whether you need one. As you near retirement, it’s better to get out of debt than take more on. If you can pay for the home without a mortgage, that may be a better option than taking out a loan.
Tips for Getting a Mortgage for Mature Borrowers
There are still ways to get a good mortgage rate if you are a little older or nearing retirement. Here are some tips to consider:
Borrow less than the home is worth.
This will give you a good loan-to-value ratio. For example, if you are only applying for a loan that will cover 80 percent of the cost of buying the home, you will get a better rate than if you apply for a loan to cover 100 percent of the house’s cost. However, that does mean that you’ll have to find some other ways to make up the difference. Perhaps you have savings you can use, or you can receive some help from family and friends. Alternatively, you may also qualify for the RRSP Home Savings Plan that allows you to use some of your RRSP money to buy a home.
Have a large deposit.
The more money you can put down as a deposit, the better loan options you’ll get. This demonstrates to a lender that you are responsible with money and are more likely to be able to pay the loan back.
Get a younger co-signer.
Lenders like to work with borrowers that offer some kind of security for the loan. Having one of your children co-sign for your mortgage can better your chances of getting a good rate.
Prepare an exit plan.
A good way to convince a lender that you can take on a mortgage is to have a plan about your retirement. For example, will you sell an investment property to pay off the mortgage? Whatever your strategy is for paying the mortgage off, let your lender know during the application process. This may be just the thing to give them the confidence to lend to you.
Lower your debt.
How much money you already owe will play a big factor in getting a mortgage approved at a good rate. So, have a plan to pay down as much debt as you can before apply for the mortgage.
Ensure you have a good credit rating.
Most likely, you already have a good credit rating if you’ve been able to build a good credit history. As such, this will work in your favour when you apply for a mortgage. Paying down your debts regularly and not defaulting on any loans will help you raise your rate.
When you apply for a mortgage, be sure to include any extra documentation that supports your case and paints you as a financially responsible person. This can include any loans or debts that you have repaid in full. Be sure to let your lender know about any savings you have, such as RRSPs.
While your age may impact the type of mortgage that best fits your lifestyle, lenders are not likely going to reject your application based on your age. It’s important to understand that as you get closer to retirement, your income may change. That will play a significant part in what type of mortgage rate you’ll be offered.
For more information about your mortgage options, call Mortgages Mortgages at 1-866-307-0747 or contact us here.