50 may be the new 40 but not when it comes to refinancing an investment property loan. Lenders are tightening their criteria, and over-55 investors may need to present a watertight loan application to get their refinance over the line.
The over-50s are a driving force in Australia’s property market with the share of investors aged 60-plus having increased significantly since the 2000s. Investors over 55 are also more likely to have an investment loan in place than in the past, with around one in three landlords aged 65 and over still claiming a tax break for their rental property loan.
Despite the weight of numbers, older Australians can struggle to refinance an investment home loan.
Anti-discrimination laws make it illegal to discriminate on the basis of age alone. However, lenders look at practical issues such as how you’ll maintain a 30-year mortgage through your sixties, seventies and possibly even eighties. This isn’t thinly veiled ageism, responsible lending laws mean lenders are legally obliged to check you can manage the loan repayments no matter what your life stage.
On the plus side, the Reserve Bank found the growing share of geared property investors aged over 60 has been accompanied by a rise in the average retirement age. Not only are older investors more likely to be working, they may also have lower household expenses and higher personal wealth, all of which can increase their ability to cope with higher interest rates. If that sounds like you, the challenge can be convincing lenders that you’re well-placed to handle an investment loan in a market that has probably evolved considerably since you first took out your loan.
Investors face tighter borrowing criteria
In 2017, banking watchdog APRA introduced measures restricting the volume of new interest-only loans lenders could offer. It’s seen many lenders tighten their requirements for investment mortgages, and you may have to jump through a few extra hoops to refinance your investment loan.
This doesn’t mean it can’t be done. However, it can call for expert support, and having a mortgage broker on your side can help get your loan application over the line.
In fact, there are four key reasons why partnering with an Aussie Broker is a must-do if you’re planning to refinance an investment property loan later in life.
1. Take the guesswork out of your borrowing power
Don’t assume it’ll be a shoo-in to refinance your loan. Many banks have tightened their rules for investment property loans so don’t guess or assume your borrowing power or simply hope it’ll all work out.
A broker can provide a clear figure of how much you may borrow, and that can be a key starting point to know whether refinancing is the right course of action for you.
2. Stress-test your cash flow
Lenders will want to see that your cash flow can handle rising interest rates or falling rents. Already many lenders have raised interest rates on investment loans but it makes good financial sense to check how well you would cope with further rate hikes in the future.
A broker can crunch the numbers to see the likely impact on your cash flow of both higher rates and vacancy periods on your rental property. A handy rule of thumb is to allow at least four weeks annually when you may not receive rental income. This number-crunching helps your Aussie Broker pinpoint any concerns lenders may raise before you make a formal application.
3. Develop an exit strategy
You may not have a plan to retire today, but chances are at some stage you’ll want to wind down your working week or maybe hang up your work boots altogether. A broker can explain that a lender may want to see what sort of exit strategy you have planned to pay out the loan early.
Whatever your strategy, ask yourself “how much do I need to retire?” or take a look at an online retirement calculator to see how well your assets will support your retirement lifestyle with an investment loan in place. Speaking with a professional financial planner can help you manage your finances in retirement.
4. Narrow down your choice of lenders
Importantly, a broker can help you identify which lenders are likely to refinance your investment loan. Yes, it’s important to be sure you refinance to a loan with a competitive rate and the features you need, however a good broker also knows which lenders shy away from particular postcodes or certain apartment developments – details that can make or break the success of your loan application.
The bottom line is that if you’re over 50 and looking to refinance an investment property loan, it pays to speak with an Aussie Broker to navigate the complex investment lending environment. It could be the step that lets you forge ahead as you move into the next phase of life.
You may also be interested in The Brokers’ Guide to Refinancing, Getting a Mortgage When You’re 55+ and APRA and investing. What do changing rules mean for you?