Property investment is a great way to support your lifestyle throughout retirement. But is there an expiry date on property investors, particularly when it comes to getting a home loan for your investment property?
Ultimately, the answer is no, however, more caution will need to be taken as you get older.
Property investment is a great way to support your lifestyle throughout retirement, so as you get older, you may start to think about investing more and more.
In your 40's
Your 40's is a great time to start thinking about property investing, if you haven't already. Most home loan terms last 20-30 years, so by the time you are ready to retire, hopefully your mortgage will be repaid and you can reap the rewards of the rental income, debt free. There is also a good chance that the property will have increased in value over the last 20-30 years, so if you have chosen to pay interest only and prefer to sell the property, you could receive a significant amount of cash back.
Your 40s should be the time that you focus on repaying as much as possible on your owner occupied home. Remember, the more money you can put towards your home loan, the quicker you can repay it and set yourself up for retirement. An offset account and free redraw are beneficial to have as they can help you save interest. An offset account is a separate account connected to your loan and by depositing funds into this account; it will help decrease the amount of interest you have to pay. You can also use this as an account for everyday transactions. Free redraw allows you to pay extra into your loan while still having access to it via redraw if needed.
In your 50's
There is still plenty of time to start investing in property in your 50's, however access to finance is not as simple.
Once you hit the late 40's and early 50's, lending requirements will start to change. In 2011, the National Consumer Credit Protection Act implemented changes to the responsible lending requirements and borrowers over the age of 50 are now being required to demonstrate an ‘exit strategy’ or a plan for what will happen with the loan for when they retire. For an investment property loan, your exit strategy may well be to sell the property. You will still have your owner occupied home to live in so this is similar to selling any geared investment once you reach retirement.
Getting a home loan for an owner occupied home can be quite different. As well as providing evidence of your income, expenses, employment, assets and liabilities, you will also need to show how you will meet your home loan repayments in retirement or pay out a home loan if your income in retirement will be minimal.
The exit strategy that you will need to provide will vary based on your income, assets and plans for retirement. Some examples of an exit strategy may include:
Before you decide to go ahead and invest in property, it would be beneficial to get financial advice from a professional beforehand. They will be able to go through your own situation personally and outline all the possibilities and whether investing would be a safe choice for you or not.
As there are a number of changes to accessing super and taxation rules, it would be best to contact a financial planner before making any decisions.
When it comes to assessing a home loan application, although lenders cannot decline a home loan application based solely on your age, it is one factor that can affect your ability to the approved for a loan. As mentioned above, lender's need to be able to see that you are able to meet the repayments with your retirement income or have a solid exit strategy in place.
For your investment property, depending how much of the purchase price your borrowed, the rental income could significantly contribute to the repayments or you have other income in retirement that would cover your living costs as well as what is needed for the investment property. Alternatively, you could opt to sell the investment property. If this was your chosen strategy, careful thought and advice should be sought if you plan to hold onto the property for just a short term as property is usually seen as a longer term investment.
When it comes to home lending for investments, there are a lot of options available and it can be overwhelming trying to find the right fit for you. State Custodians has a broad range of home loan options for investors. Our experienced Lending Specialists can help you do the calculations to find out if an investment property is an option for you. To speak to a Lending Specialist now call 13 72 62 or leave your details here and they will contact you.