Age is just a number except when applying for a mortgage?

Introduction

When it comes to age, the saying “age is just a number” is often used to emphasize that age should not limit a person’s abilities or opportunities. However, there are certain situations where age does play a significant role, such as when applying for a mortgage. Lenders consider various factors when assessing mortgage applications, and age is one of them. In this article, we will explore why age matters in the mortgage application process and how it can impact your chances of securing a loan.

Age and Mortgage Eligibility

Age requirements: Mortgage lenders typically have age restrictions in place to ensure that borrowers can repay their loans before retirement. These requirements vary among lenders but are usually based on the retirement age in a specific country or region. For example, in the United States, the age requirement is often set at 18 years old, while some lenders may have a maximum age limit of 65 or 70.

Income stability: Lenders consider the stability and consistency of a borrower’s income when assessing mortgage applications. Age can be a factor in determining income stability, as younger borrowers may have shorter employment histories or be in the early stages of their careers. On the other hand, older borrowers may be closer to retirement, which could raise concerns about their ability to continue making mortgage payments.

Loan term: The term of a mortgage, which is the length of time to repay the loan, can be influenced by the borrower’s age. Lenders may be hesitant to offer long-term mortgages to older borrowers, as they may not have enough time left in their working years to fully repay the loan. This can result in shorter loan terms or higher monthly payments for older borrowers.

Age Discrimination and Legal Considerations

Age discrimination laws: Age discrimination is prohibited in many countries, including the United States, under laws such as the Age Discrimination in Employment Act (ADEA). However, these laws generally do not apply to mortgage lending. Lenders are allowed to consider age as a factor in mortgage applications as long as it is not the sole basis for denying a loan.

Actuarial risk: Lenders may argue that age-based restrictions are justified due to actuarial risk. Actuarial risk refers to the statistical likelihood of certain events, such as death or disability, occurring within a specific age group. Lenders may use actuarial tables to assess the risk associated with lending to borrowers of different ages. While actuarial risk can be a valid consideration, it is important to ensure that it is not used as a pretext for age discrimination.

Options for Older Borrowers

Retirement income: For older borrowers who are close to or already in retirement, lenders may consider retirement income sources, such as pensions, social security, or investment income, in addition to regular employment income. These alternative income sources can help demonstrate the borrower’s ability to make mortgage payments even after retirement.

Reverse mortgages: Reverse mortgages are a type of loan specifically designed for older homeowners. With a reverse mortgage, borrowers can convert a portion of their home equity into loan proceeds, which they can receive as a lump sum, monthly payments, or a line of credit. The loan is typically repaid when the borrower sells the home or passes away. Reverse mortgages can be an option for older borrowers who may not qualify for a traditional mortgage due to age or income limitations.

Conclusion

While age is often just a number in many aspects of life, it does play a role when applying for a mortgage. Mortgage lenders consider age as one of the factors in assessing loan eligibility and determining the terms of the loan. However, it is crucial to ensure that age-based restrictions do not lead to unfair or discriminatory practices. Older borrowers may have alternative options, such as demonstrating retirement income or exploring reverse mortgages, to improve their chances of securing a loan.