Borrowing after 50 years to acquire new real estate requires some precautions. The calculation of borrowing capacity sometimes changes due to approaching retirement and the total cost can be high due to borrower insurance. So many elements that must be anticipated to borrow at 50 years.
There is no age for wanting to change accommodation and borrowers over 50 may well embark on a real estate purchase project. If the payment for the new home requires a mortgage, some steps will have to be taken to ensure that the file goes to the bank.
Borrowing capacity and the transition to retirement
“Seniors are good profiles for banks for several reasons : they borrow for short periods – 15 years on average -, have a contribution, life insurance or are already owners which offers guarantees for the bank, and they often have lower charges because they do not have more dependent children … but the flip side is that they are already banked, that they can have health problems resulting in a higher insurance cost that can make them difficult to finance, and income that it is necessary to anticipate the decline at the time of retirement “, explains Sandrine Allonier, communications director of the loan broker Vousfinancer.com.
- The bank will not take into account 100% of the net income to establish the borrowing capacity but will be based on 70%. A point that should therefore not be overlooked in defining the purchasing power of real estate.
The case of real estate sellers
Another element to consider when borrowing after 50 years : the bridge loan for people who are owners before buying and who buy before selling. In this case, the bank will rely on real estate estimates of the selling price.
- The bank will only take into account 70% of the value of the property, or even 80% if a sales agreement has been signed.
For this reason, some buyers decide to sell before you buy so that their purchasing power is not limited. “I have made many estimates to sell my house. The bank is following me for a bridging loan but I prefer to have sold or advanced in my sales project before making an offer to purchase my future home. Financially, I am more reassured and this will allow me to buy a little more expensive than a bridging loan. I make visits and in case of crush, I would perhaps consider a purchase with a long sale which will give me time to find a buyer for my house “, remarks Stéphanie, saleswoman of a house in the south.
Pay cash or take out a mortgage?
Buyers with a large contribution may hesitate between taking out a loan and paying cash for the property “so as not to have credit”. But several reasons can encourage taking out a loan:
- Low rates on short terms (10 to 15 years) often below 1% for good profiles
- The leverage effect of interest rates
- The borrower insurance coverage that protects heirs in the event of death, a way to prepare your succession
“In the current context, when we are close to retirement and when you are lucky to have savings, it is better to keep your investment products, such as life insurance that will earn on average 2.5%, and borrow at 1% over 10 years! In addition, when it comes to life insurance, it can be backed in the case of a loan in fine or serve as collateral if the borrower is not insurable, or can be but at a really dissuasive cost “, explains Sandrine Allonier.
Loan insurance after 50 years
As you get older, health problems can appear. These elements are taken into account by the insurer who offers a higher or lower rate depending on the borrower’s state of health.
“One of the main topics for seniors who want to invest in real estate is loan insurance, because the older we get, the more the probability of having health problems increases and therefore the more expensive the insurance is … It is even frequent that because of the insurance, the wear rate is exceeded, especially since it has just fallen again, which makes the client unfinancable, unless other solutions are found. In certain cases of illnesses, chronic or not, the additional premium is such that it is better to opt for financing without insurance, by taking another asset as collateral for example, or by insuring only the youngest spouse or in good health ” advises Sandrine Allonier.
The age limit for borrowing
Another important point to take into account when considering taking out a mortgage after age 50 is the age limit for bank loans. “While theoretically there is no age limit for taking out a loan, this is strongly linked to the age limit for loan insurance coverage. Most banks agree to cover the borrower with group insurance up to the age of 75, when the loan is terminated. We can therefore theoretically borrow at 55 years over a period of 19 years … With delegation of insurance, coverage can go up to 90 years or even 95 years, age of end of loan… But in fact, borrowers over 50, like banks, prefer shorter credit terms, from 10 to 15 years “, adds Sandrine Allonier of Vousfinancer.
Points to remember for a loan after 50 years
Several elements should therefore hold your attention if you want to borrow for a real estate purchase after 50 years.
- The loan end age limit generally of 75 years which therefore limits the loan period and therefore the capital (except in the event of delegation of insurance, possibility of 90 to 95 years)
- Income taken into account before retirement: 70% of net income in order to anticipate a drop in income related to retirement
- The price of the property in case of purchase resale: 70 to 80% of the amount of the estimates
- Borrower insurance and its cost for the borrower who can exclude certain profiles (limited by the usury rate)