When you borrow money to buy a house, the lender wants to know that you will be able to pay back the loan, which can last up to 30 years. But what do you do when you don’t plan on being in the paid workforce for the next 30 years, or you’re at retirement age inside the next 10 years?.
Let’s take a look at two different scenario’s; the first being you’d like to buy an owner occupied home and the second is if you’d like to buy an additional investment property. Two scenarios with two different outcomes.
Getting approved for a loan can seem like a mysterious process, especially when it comes to how your age factors in. Many people wonder if there is an age that is considered too young or too old to qualify for certain loans from banks and other lenders. The reality is that age alone cannot be used to deny you a loan, but it may play a role in determining your eligibility.
Age Discrimination is Illegal
The Equal Credit Opportunity Act (ECOA) says that lenders can’t treat applicants differently just because of their age. This means that they can’t turn down your loan application just because you are too young or too old. Age discrimination in lending is illegal.
However there are some nuances in how age can and cannot be considered
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Legal Age of Contract Lenders cannot grant loans to individuals below the legal age to enter into contracts. This age varies by state, but is typically 18 years old
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Credit Scoring: Age can be factored into credit scoring models, but only if it does not unfairly disadvantage applicants age 62 or older. Valid credit scoring systems may even favor older applicants.
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Income and Retirement: Lenders may relate your age to income and retirement plans to assess if you have the means to repay the loan. But the focus is on ability to pay, not age itself.
Income Sources Matter More Than Age
Your sources of income are much more important than your age when it comes to getting a loan. Banks and lenders want to see proof of steady income that shows you can pay back loans on time.
Some common income sources they may evaluate include:
- Employment income (full-time or part-time)
- Retirement income like pensions and Social Security
- Investment income
- Public assistance
- Alimony/child support
Self-employment income can also be used, provided you supply documentation like tax returns. The amount and continuity of your income matters more than where it comes from.
Typical Age Limitations of Lenders
While age discrimination is illegal, many lenders do have maximum age limits for borrowers. This is not a hard rule, but more of an informal policy. Here are some typical age caps:
- Mortgages – Up to age 70-75 for standard terms, but reverse mortgages allow older borrowers
- Auto Loans – Usually age 70-75, though specialty lenders may go up to 80
- Personal Loans – Age 75 is common, some lenders go up to 80
- Student Loans – None, though under 25 may require a co-signer
- Business Loans – No limit, but revenue history helps older applicants
These limits are not set in stone, and you may be able to find exceptions by shopping around. But they demonstrate how lenders tend to perceive higher age and risk.
Tips for Older Borrowers
If you are worried about being denied a loan due to age, there are steps you can take to boost your chances:
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Improve credit score – Compensate for age with a long credit history and low debt.
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Lower debt-to-income ratio – Pay down existing debts so you have less liability.
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Grow savings – Solid assets help back up your ability to repay.
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Add a co-signer – A younger co-signer can help get approved.
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Seek specialty lenders – Some lenders cater more to seniors.
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Shorten loan term – Opt for a 10 or 15 year loan rather than 30 years.
Exceptions to Age Limit Rules
While lenders tend to be more cautious of older borrowers, there are some cases where age limits are more flexible or waived:
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Reverse mortgages actually require borrowers to be age 62 or older.
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Commercial loans for businesses often rely more on the company’s finances than the owner’s age.
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Low-income seniors can sometimes qualify for special lending programs for housing/vehicles.
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Annuities and other insurance products are available at any age provided payments are made.
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Friends/family may offer personal informal loans regardless of age.
The Bottom Line
It’s not clear what age you have to be before you can get a loan. Much depends on your specific financial situation. Borrowers over the age of 50 must be ready to show that they can still make payments. But if you have good credit, assets, and income, you can still get loans well into your retirement years. Age alone should not be the deciding factor.
What to Do If You Face Age Discrimination
If you think you were wrongfully turned down for a loan because of your age, here are some things you can do:
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Request the lender provide the exact reason for denial in writing.
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Consult with an attorney to see if age discrimination was a factor.
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File a complaint with the Consumer Financial Protection Bureau (CFPB).
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Contact the AARP, who can also investigate on your behalf.
Unfair age discrimination, while not as overt as in the past, still persists in some lending practices. Being aware of both your rights and proactive strategies as an older borrower can help you gain access to the financing you need. With some diligence and preparation, obtaining a loan at any age is possible.
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Buying an Owner Occupier – how old is too old?
There are a number of variables with this question, like how do you propose to extinguish the debt once you retire? Will your retirement income be sufficient to service the loans? Do you have enough superannuation to extinguish the bulk of the debt? Do you have other assets like shares that you can sell? If you do not have assets that will be released or others that you can liquidate to extinguish the debt, or a reoccurring income at retirement that will service the residual debt, then the loan term will need to be reduced to match your retirement age of 65. Yes that means if you’re 57 now, you can only get a loan term of 8 years. The size of the loan and your ability to repay will determine how much you can borrow. But in essence the loan needs to be finalised by the time you reach age 65 if you cannot show evidence of a reoccurring income that will service the debt post 65.
Side note: This policy is relatively new. It has stemmed from the GFC and banks being satisfied that the borrower will not be put into financial hardship by something that they may know when taking out their loan. And we all know that 65 is retirement age so hence why your loan term may be reduced to match.
3 Things the Banks look for when giving you a loan
FAQ
What is the maximum age for taking out a loan?
Well, correction: when it comes to the maximum age for taking out a loan, there’s no official maximum age limit. You do, however, always need to be over 18 years old. For each lender, the upper and lower age limits are different, so you should look around until you find one that works for you.
What is the age limit for a bank loan?
Age: Most banks and NBFCs offer personal loans to applicants in the age group of 18 years to 65 years. Various public sector banks also offer personal loans to pensioners on the basis of their pension income. Is there an age limit on bank loans?.
How old is too old for a home loan?
Getting on the property ladder later in life may mean you have to jump through a few extra hoops to get your home loan application approved. When you consider that the term of a home loan can be as long as 30 years, borrowers over a certain age may not be able to pay off their home loan before they retire.
How old do you have to be to get a mortgage?
However, the scoring system may favor applicants 62 years or older. When you apply for a Home Equity Conversion Mortgage, a type of Reverse Mortgage, your age will be taken into account. In addition, a lender may relate your age to other information about you that the lender considers in evaluating creditworthiness.
Are mortgage lenders lowering the maximum age you can be?
Lenders are lowering the oldest age at which you can be when your mortgage is due (Rex Features) The Independent is there when the stories happen, covering everything from reproductive rights to climate change to Big Tech.
Can I borrow money if I’m a 50 year old?
50: Most lenders will allow you to borrow, but some may decline your application due to your age. 55: Almost all lenders will require a written exit strategy, evidence of your superannuation and other assets that can be sold to repay the proposed debt. 60: Most banks are likely to decline your application due to your age.
Can I get a loan if I am over 70?
Many lenders state that the maximum age limit on personal loans is 70, although some may consider those up to the age of 75. Looking for a loan if you are over the age of 70 may present limited choices, and it is rare to find a lender willing to offer a loan to anyone over the age of 75.
Can a bank refuse a loan because of age?
A lender generally can’t deny your loan application or charge you higher interest rates or fees because of your age. This rule applies to various types of lenders when they’re deciding whether to give credit, such as an auto loan, credit card, mortgage, student loan, or small business loan.
Can a 70 year old get a 30 year loan?
Lenders are prohibited from discriminating by age. So if an 80 year old wants a 30 year mortgage, lenders cannot refuse.
Can an 82 year old get a personal loan?
The question has both legal and practical implications. But the answer to both is YES! Federal law prohibits lenders from discriminating based on age (and other demographics like race and religion) or withholding loans for those who receive Social Security and other forms of public assistance.