Mortgage for a pensioner – what should you remember?
A mortgage for a pensioner who dreams of having his own home is sometimes the only way to implement his plans. Age can make it very difficult to apply for a loan to buy an apartment or build a house. Age limits are against the senior, but he can effectively convince the bank of his stable life and financial situation. What conditions must be met to obtain a mortgage for a pensioner? How long can the loan be counted on? What documents do the lender require? We answer!
Banks see seniors as reliable, honest and economical customers. Constant and regular income makes them willing to provide them with cash loans, loans, renewable limits or other credit products with a relatively short financing period. However, with long-term liabilities, due to the age of retirees and the associated risk of non-repayment, financial institutions apply stricter rules.
Borrower’s age and mortgage
Currently, banks grant mortgage loans for a maximum period of 35 years. People who are already retired must be prepared for a much shorter repayment period. The older the pensioner, the shorter the funding period he can get. In practice, the age limit imposed by the bank is decisive. It provides a kind of security that the borrower will pay all his debt during his lifetime. In most banks, this limit is 70 or 75 years, individual institutions have set the upper limit at 80 years.
What exactly does such a threshold mean? For example, if a 65-year-old customer wants to take out a mortgage at a bank with a 75-year-old age limit, he will have to repay the liability in full just before reaching the age of 75.
Short loan period – lower chances for a mortgage for a pensioner
Due to age, the senior may benefit from a relatively short loan period. It is important because the faster you have to pay back the debt, the higher you pay the monthly installments, and thus – also has lower creditworthiness. The amount of loan installments is one of the most important factors that the bank takes into account when checking the ability to repay a given liability.
If the customer wants to take, for example, a 10-year mortgage of 100,000. with equal installments and an interest rate of 4%, he will repay about USD 1,000 each month. Hardly any pensioner would be able to cope with such a financial burden. Meanwhile, extending the loan period to 20 years, with the same loan amount and the same interest rate, would reduce the monthly installment to just over USD 600. For some seniors with a high pension or income from additional sources, this amount would already be acceptable.
What determines the decision on a mortgage for a pensioner?
Regardless of whether the customer is 35, 50 or 65 years old, the bank considers the loan application in the same way. In each case, the lender’s activities consist in collecting and analyzing information that allows assessing the financial position and payment reliability of the client. Based on the data contained in the application and collected by BIK and registers of debtors, it examines the creditworthiness and history of repayment of liabilities. The senior, like representatives of younger generations, must therefore take into account the fact that the bank will check his: amount and sources of income, level of debt, number of people forming a household, or living costs.
How can a pensioner increase the chances of a mortgage?
The bank is most afraid that the pensioner will not be able to settle the loan, and that his health will deteriorate over time and make it difficult for him to pay the installments. However, there are some solutions by which a senior can increase his chances of getting a mortgage.
Choosing a bank with a high age limit for the borrower
This is the most obvious and the easiest way to increase your chances of getting a positive credit decision. When submitting an application at a bank where the age limit reaches, for example, 80 years, and not the standard 70 or 75 years, the senior can count on a longer loan period and thus greater creditworthiness. However, he should remember that where there are less restrictive rules, life insurance with a bank assignment is usually necessary.
Making a high own contribution
Pursuant to the provisions, when applying for a mortgage, you must make an own contribution of at least 10% of the value of the property you are purchasing. A senior who has set aside a larger amount and earmarks it for his own contribution will increase the chances of a positive credit response. The higher the amount, the more likely the bank will grant him a loan. It is worth noting that an additional contribution may be not only cash, but also the establishment of a mortgage on another property (e.g. on a recreational plot), or a set on securities (e.g. treasury bonds).
Importantly, even if a pensioner is able to make 80% or 90% of his own contribution, he still has to prove that he can meet the loan repayment. Banks assume that the monthly cost of maintaining a household is about 1000-1200 USD, therefore the amount of pension received by the senior must be correspondingly higher (i.e. one that is sufficient for monthly expenses and repayment of loan installments).
Having an additional source of income
When examining creditworthiness, the bank takes into account all stable, documented sources of customer income. If a senior gets a retirement benefit and is still working, or earns income from renting an apartment, his chances of getting a loan increase.
Joining the co-applicant
The senior situation may also be improved by submitting the application together with the child, grandson or other professionally active co-applicant. The bank will sum up the income of all persons attached to the application and on this basis calculate their creditworthiness. Importantly, however, in this case, it will also thoroughly review the situation and financial credibility of the potential co-borrower. If the latter has considerable debt, in the past he has not repaid his loans reliably, or has several dependents, then joining the loan will only worsen the assessment of the application.
It is worth remembering that a pensioner who has a spouse and is associated with him in a community of property, always takes a loan with him. If your spouse is unemployed, this will mean a lot of trouble getting a loan.
Take out life insurance
In the case of a mortgage for a pensioner, this point is basically a must. The life insurance policy gives the bank the certainty that if the borrower dies before settling the entire liability, the remaining part of the debt will be paid by the insurer. Importantly, it is required to make an assignment from insurance to the lender, in an amount not lower than the sum of the loan.
Obviously, the client’s age is also reflected in the parameters of the life insurance policy. The high risk of his death translates into a high premium as well as a small selection of insurance offers.
A mortgage application for a pensioner – documents required by the bank
Before applying for a mortgage, you should contact a credit expert. You can also visit a bank branch and ask about the credit process and documentation requirements. Individual banks may apply slightly different rules in this respect, but a certain set of documents is required by each institution.
To be able to verify the senior and assess his creditworthiness, the bank will need documents such as:
- ID card;
- pensioner’s ID or decision on granting the benefit;
- last pension or personal account statement confirming the amount of the retirement benefit;
- documents confirming other sources of income;
- Preliminary agreement for the purchase and sale of real estate.
When a senior applies for a loan to a company with another person, the co-applicant’s personal and income documents will also be required.
It is difficult for a person over 60 to get a mortgage for 200 or even 100,000 usd. The chances of a positive decision increase when a relatively small amount is missing to finance the purchase of a property – 30,000 or 50,000. usd. An effective solution may also be joining an economically active co-borrower or providing additional security for the repayment of liabilities.