Should I Get a 30-year Mortgage at Age 65?

There’s no question that anyone at any age is allowed to get a mortgage loan. The Equal Credit Opportunity Act is clear on that point: “individuals cannot be discriminated upon via factors that are not directly related to their creditworthiness,” including their age.

However, as we all learned from Jurassic Park’s Dr. Ian Malcolm, “You were so preoccupied with whether you could, you never stopped to think if you should.” And, that’s where disaster began.

While financial planners and experts will often recommend buying a house rather than renting, it’s interesting to note that their recommendations change as the buyer gets older. At the same time, there are good reasons why seniors should consider applying for a mortgage later in life. So, let’s consider both the pros and the cons of getting a mortgage as a senior citizen.

Will you qualify?

To begin with, it’s important to note that, although no bank can deny a mortgage loan based on age, everyone needs to meet the same financial qualifications in order to be approved. Generally, these include a high enough credit score, appropriate debt-to-income ratio, and proof of adequate income.

Related: How to Fix Your Credit to Buy a Home

For seniors who are no longer working, or who are living primarily on a fixed income, this can be tougher than it is for younger buyers who enjoy greater future earning potential.

The banks are not only looking at a buyer’s current economic situation, but also what they reasonable expect will happen down the road: If their financial history shows a steady increase in wages during a long tenure at their current job, it’s reasonable to expect that trend to continue. However, if the financial history shows several years of identical social security payments and little else, it’s reasonable to expect that to continue as well.

The trouble is, the economy doesn’t stay still. Inflation, energy costs, and many other cost-of-living factors are constantly changing, often becoming more expensive over time. As a result, it’s quite possible a long-term loan like a mortgage could make sense on paper today, but be completely unaffordable five or ten years in the future.

As a result, seniors on fixed incomes are generally less likely to qualify for standard mortgage financing from most lenders. This isn’t because of their age, but rather because of their current and future financial situation.

Of course, many seniors have more favorable financial circumstances including investments, savings, and pensions with cost-of-living increases built in. In those cases, lenders are unlikely to think twice about approving a mortgage.

Why seniors should probably avoid getting a mortgage

There are other things seniors should consider, though, even if they’re approved for a mortgage based on their financial situation:

Cash flow

Cash flow is a problem for seniors on a fixed income, or whose wealth is wrapped up in non-liquid investments. While they’re able to qualify for a mortgage based on the big picture, if they’re not actually bringing in enough cash each month to cover the mortgage payment along with all the other necessary living expenses, they’re going to run into trouble.

Adding to this challenge is the fact that many necessary expenses change regularly and unexpected situations such as medical emergencies or car repairs can quickly put a strain on an otherwise healthy budget.

Rising expenses

Costs that are inherent to homeownership tend to rise over time, sometimes unexpectedly. Beyond the basic mortgage payment, which should stay the same (unless it’s a variable-rate loan), owning a home requires the payment of utility bills, property taxes, repairs and maintenance, and insurance, at the very least. All of these costs can (and probably will) rise over time.

Since most seniors have a cap on their earning potential — even if they’re in a good financial position at the start of the mortgage — these costs could eventually make the home unaffordable before it’s paid off.

Estate concerns

It’s not pleasant to think about, but it’s important for seniors considering such a large financial commitment to recognize that there’s a very good chance they’re not going to outlive the term of the loan. This is important for a few reasons:

For married couples, income is often based on both spouses being alive. Should one pass away, it could result in the household income dropping by a significant amount, while the mortgage payment remains the same. Likewise, even if the spouse is not affected, a relatively new mortgage in which little equity has been built up can become a burden for children or grandchildren.

Why seniors should consider getting a mortgage

All that being said, there are some situations where a new mortgage may be the best option for someone over 65.

One example is obtaining a refinanced mortgage on a current residence, which results in lower monthly payments and/or a shorter term. As long as the initial fees and down payment required are affordable at the time of the application, this can be a wise way to make retirement more manageable and speed up debt reduction for estate planning purposes.

To conclude, there are no hard-and-fast rules regarding whether a senior citizen should apply for a mortgage. As with any potential homebuyer, seniors do well to seriously consider whether they can reasonably afford the cost, and if they’re willing to make the commitment. With the help of a trusted financial planner, and a solid grasp of the pros and cons involved, they can come to the best decision for their situation.

If you’re looking into a mortgage, but are concerned about your credit, learn more about our credit repair services.

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