Planning to borrow close to retirement? Here is what lenders need to see.
If you are borrowing a home loan and you are close to retirement age, lenders will ask for a mortgage exit strategy. This is your plan for paying off the loan once your regular income stops. Without a solid plan, your application can be knocked back.
This guide covers what lenders look for, which strategies they accept, and how to make the strongest possible case.
What it means
A mortgage exit strategy is a backup repayment plan. Every home loan technically already has one built in: pay it off over 30 years. Lenders only ask for a formal strategy when the standard 30-year term does not suit your situation.
The most common trigger is age. If the youngest borrower would still be repaying the debt past the lender’s retirement age (usually between 65 and 70), lenders want to know how you will manage repayments on a lower income.
Exit strategies can also come up with leasehold properties, development loans, and other situations where a standard loan term is not appropriate. Use our loan repayment calculator to see how different loan terms affect your monthly commitments before you apply.
Strategies lenders accept
Lenders want a realistic, evidenced plan. These are the strategies most commonly accepted:
Strategies to avoid
Some plans sound reasonable but lenders generally will not accept them:
There are grey areas. A broker who understands lender policy can sometimes get an exception approved where the strategy is logical and the evidence is solid. If your home loan has been declined due to exit strategy concerns, it is worth getting a second opinion before you give up.
Downsizing your home
Downsizing to a smaller property at retirement is one of the more commonly used exit strategies. To be credible to a lender, your plan needs to be specific rather than vague.
You will typically need to provide:
If you already live in a small apartment, it is difficult to convince a lender that downsizing is a genuine option. The lender needs to see a clear difference in value between what you currently own and what you plan to buy. Check your borrowing power at different property price points to see how the numbers could work.
Documents you will need
The paperwork required depends on your strategy, but you will generally need some of the following:
Having these documents prepared before you apply speeds up the assessment and shows the lender you have a credible, well-considered plan.
Common questions
Q: Do investment properties need a mortgage exit strategy?
Not always. Because you can sell an investment property at any time without the financial hardship that comes with losing your primary home, many lenders do not require a formal exit strategy for investment loans. However, some do, particularly for larger loans. A mortgage broker can help you find a lender suited to your situation.
Q: What if I own a business and expect to keep working past retirement age?
This can work in your favour. If your business does not require physical labour, has a succession plan in place, and can reasonably continue without you as the key person, some lenders will factor in ongoing business income. You will need evidence to support this, not just your word for it.
Q: Can I combine two or more exit strategies?
Yes, and doing so often strengthens your application. Pairing a super projection with a downsizing plan gives the lender two separate repayment sources to consider. The more concrete evidence you provide for each element, the better your chances of getting approved.