Our resident experts answer readers’ questions regarding borrowing when you’re over 50.
BORROWING IN YOUR 50'S
Question: We’re thinking of investing in property but we may have left it too late. My husband is 55 and I’m 48. Our house is fully paid off and we have a fully paid commercial property that hasn’t grown in value over the last 10 years. How difficult would it be to get financing at this stage? Is there a cut-off point when the banks stop lending because you’re too old?
Answer: Let’s put your mind at rest right now. Age is not a factor when investing in property. However, if you need to borrow as an owneroccupier, such as if you want to borrow to buy your own home, then age is most definitely a factor. The banks’ policies are starting to work against you over the age of 35. Since the responsible lending laws were enacted, banks won’t allow you to have an owner-occupier loan beyond the age of 65. So if you were 42, for instance, you could not avail yourself of a 30-year loan to buy your own home; you could only qualify for a 23-year loan. This makes a massive difference to repayments. Let us say a 42-year-old wanted to borrow $400,000. He would pay $372 per week (assuming 5% p.a. interest rate at approximate current rates) for a 30-year loan, and $422 per week for a 23-year loan. 7.25% p.a., which is the long-term average, then: Repayment for a 30-year loan = $630 per week Repayment for a 23-year loan = $687 per week
– Catherine Lezer
Question: Following your article in the March 2014 issue, I checked my VedaScore. I got the reply, “You do not have sufficient credit activity on your credit file to calculate a score”. I need to know whether this is better or worse than a good credit score, and, if the latter, what I can do about it.
I currently have a mortgage on my PPOR, three investment properties in my own name and one in my SMSF. I plan to continue purchasing investment properties, so I want my credit rating to be as good as possible. I have no other debts or loans and pay all my bills on time. I have only one credit card, and whenever I use it I pay off the money quickly (usually the same day). Do I need to worry about not being given a rating? And what can I do to ensure I have a good one?
Answer: There could be a couple of reasons why you have received the response “insufficient activity to calculate a score”. If you made applications for the loans more than five years ago, then they will have been deleted as by law this information can only be held for five years.
You will still have a credit report and, as your file has been established for some time and with no adverse history (eg defaults), when you next apply for credit there will be sufficient information for a VedaScore.
Based on previous experience, your VedaScore should be fairly favourable, depending on the credit you apply for. If you have applied for credit in the last five years it may be that it was at a different address and your new address has not linked to the previous one. To help in this situation you should contact Veda to supply your address information so that the details can be linked and a VedaScore can be generated.
Under the new comprehensive credit reporting system commencing 12 March 2014, your current credit accounts will become part of your credit report and will contribute to your VedaScore, even if you haven’t had any credit applications in the last five years. This is one of the benefits of comprehensive credit reporting as it is a much more balanced system giving a clear picture of your creditworthiness.
– David Grafton
Catherine is a personal mortgage advisor at Smartline.
David is the executive general manager, credit risk and advisory services, Veda.
Disclaimer: The views provided are of a general nature and should be considered as general information only. This is not financial advice and it is not to be acted upon without advice from a qualified professional who understands your personal circumstances.