Why Are Over 40s Having Mortgage Applications Denied
To get a feel as to why these applicants feel the way they do, we need to first turn back the clock back to before the days of computerised credit scoring and increased regulation.If you went to your local Building Society for a mortgage, youd likely have been interviewed by the Branch Manager or a Mortgage Advisor.They would individually assess your personal details and then decide whether to approve your application or not. If you were lucky enough to get approved, you would then be advised how much earners, like yourself, could borrow. This would have been expressed quite simply as a multiple of your gross salary. For example, if you were earning £20,000pa and the lenders income multiple was 3.5x then you would be allowed a mortgage of £70,000. What this income multiple methods didnt take account of was age. Therefore, it didnt matter if you were 30 or 50 years of age, you could be allowed to borrow the same amount of money.
How Do You Apply For A Mortgage
Before applying for a mortgage, you’ll want to do some prep work. First, check your credit score to make sure it’s as healthy as possible and take a look at your credit report to ensure there are no inaccuracies that could be bringing your credit score down. Mortgage lenders will be checking both of these to determine your future interest rate. The higher your credit score, the lower your interest rate will be, which means your monthly mortgage payments will be lower.
You can view your credit score and with Experian. If it turns out your credit score could use some improvement, try using a service such as *Experian Boost®, which links to your bank account and analyzes your transactions for regular utility and subscription service payments, then uses this activity to help bump up your FICO® Score.
- Debt-to-income ratio
- Loan-to-value ratio
Lenders will typically provide homebuyers with a mortgage pre-approval letter once you have been pre-approved for a loan amount. These letters are usually valid for 60 to 90 days once you have it, you’ll want to start looking at homes as soon as possible before this timeframe expires.
It’s important to note that your mortgage lender may not always be your mortgage servicer, as many lenders end up transferring servicing rights over to another company, which will then be the one to send you mortgage statements and handle all associated administrative tasks the terms of your mortgage shouldn’t change, however.
Other Factors To Consider
Your age isn’t the only factor that could be a barrier to getting a 40-year mortgage. Lenders will normally ask when you plan to retire when considering your eligibility for a deal.
According to David Blake from Which? Mortgage Advisers, some lenders will allow a working age of up to 80 depending on the nature of your job. A manual worker such as a builder is unlikely to be accepted up to this age, but if you have a less labour-intensive job you may be able to pass this check.
Other lenders will permit you to borrow past retirement age if they can see you are contributing towards your retirement, ie paying into a pension.
- Find out more:how much will you need to retire?
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Prepare Your Credit Before Applying For A Mortgage Loan
Whether or not you’re thinking about pursuing a 40-year mortgage, it’s crucial that your credit profile is in tip-top shape before applying for a home loan. Check your credit report and to determine where you stand and take steps to address potential issues that could affect your approval odds.
This may include paying down credit card debt, bringing past-due accounts up to date and more. Also, avoid applying for new credit in the six to 12 months leading up to your mortgage application because it could impact your credit score and your debt-to-income ratio.
As you prepare to apply for a mortgage loan, working to improve your credit can help you reduce your monthly housing costs and maximize your total savings.
Home Buyers Should Shop Around For Lenders And Loans
Different lenders offer different types of loans, which come with different interest rates and terms, so buyers should talk to more than one lender. Lenders assess buyers entire financial situation, determine whether and how clients can improve their profile, and figure out which programs benefit them most.
Its amazing what a great lender can do, said real estate broker Barnshaw. Theyre like a magician.
Sharpe said a good lender should offer a menu of different programs based on a buyers qualifications. Lenders recommend that buyers ask for and consider all their options.
For example, although 30-year fixed-rate mortgages are most popular, adjustable-rate mortgages have grown in popularity as rates have climbed from historic lows early in the pandemic. Homeowners pay an initial interest rate that is typically lower than for a fixed-rate loan. After a certain number of years, the rate periodically adjusts based on economic conditions.
Buydown programs also have become more popular. Sellers contribute money at closing, and buyers pay lower interest rates for the first year or years. For example, if a buyer purchases with a 30-year, 3-2-1 buydown mortgage at a 6.99% rate, the rate the first year would be 3.99%, then 4.99% for the second year, 5.99% for the third, and 6.99% for the remaining years.
These programs can be especially attractive for buyers who will have higher incomes in the next few years.
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Money’s Daily Mortgage Rates For December 1 2022
Almost all loan types inched higher yesterday, according to Money’s daily mortgage report.
The average rate on a 30-year fixed-rate mortgage increased by 0.026 percentage points to 7.826%. Rates on adjustable-rate loans also increased across the board. On the other hand, the rate on a 15-year fixed-rate loan moved down.
- The latest rate on a 30-year fixed-rate mortgage is 7.826%.
- The latest rate on a 15-year fixed-rate mortgage is 6.217%.
- The latest rate on a 5/6 ARM is 7.215%.
- The latest rate on a 7/6 ARM is 7.281%.
- The latest rate on a 10/6 ARM is 7.242%.
Money’s daily mortgage rates are a national average and reflect what a borrower with a 20% down payment, no points paid and a 700 credit score roughly the national average score might pay if he or she applied for a home loan right now. Each day’s rates are based on the average rate 8,000 lenders offered to applicants the previous business day. Your individual rate will vary depending on your location, lender and financial details.
These rates are different from Freddie Macs rates, which represent a weekly average based on mortgage application data submitted to Freddie Mac by thousands of lenders across the country. The weekly rate averages are based on applications for conventional, conforming loans for borrowers with excellent credit who made a 20% down payment and no longer include discounts for points/fees paid.
Property Tax Breaks For Seniors
One final thing to consider as a senior homeowner is that you may qualify for a property tax break.
Rules to claim your senior property tax exemption and the amount your taxes could be reduced varies by state. So check with your local tax authority or financial planner for more information.
If you do qualify for reduced real estate taxes, this could help lower your debt-to-income ratio and therefore increase the amount you can borrow on your new home loan.
Keep in mind, even if you do qualify for tax breaks, taxes will be calculated at the current tax rate in the local area, says Jon Meyer, The Mortgage Reports loan expert and licensed MLO.
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What Drives Property Price Bubbles
People project the recent past as applying to the future in an unchanging way. Financial trends which have been in place for an extended period of time eventually attract people who invest into the underlying trend, not based on fundamental value, but based on the presumption the trend will continue.
This is a large part of what drives Bitcoin, collectibles, fine art & high-end property prices.
Steve Keen’s book Can We Avoid Another Financial Crisis? explains that the rate of change of credit growth into an asset class is largely what drives changes in price:
credit is inherently unstable, prone to expand excessively and to inflate asset price bubbles, which in time collapse, causing a cascade of defaults throughout the economy. In Minskys world, the tail of finance wags the real economy dog. Anyone who paid serious attention to credit, as Keen did prior to 2008, could hardly have failed to notice that something was amiss. After all, credit was growing very rapidly in the United States, in Australia and across much of Europe. Keens own contribution at the time was to point out that it wouldnt take a collapse of credit to cause a serious economic downturn a mere slowdown in the rate of lending would do the job. This prediction was vindicated in 2008, when credit growth slowed sharply but remained positive, sending the U.S. economy into a tailspin.
What Credit Score Do Mortgage Lenders Use
Most mortgage lenders use your FICO score a credit score created by the Fair Isaac Corporation to determine your loan eligibility.
Lenders will request a merged credit report that combines information from all three of the major credit reporting bureaus Experian, Transunion and Equifax. This report will also contain your FICO score as reported by each credit agency.
Each credit bureau will have a different FICO score and your lender will typically use the middle score when evaluating your creditworthiness. If you are applying for a mortgage with a partner, the lender can base their decision on the average credit score of both borrowers.
Lenders may also use a more thorough residential mortgage credit report that includes more detailed information that wont appear in your standard reports, such as employment history and current salary.
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Can I Lengthen The Term On My Existing Mortgage
Lenders will generally let you apply to extend your mortgage term, but they will need to run some checks on you before extending it.
Note that lenders will also have a maximum age limit that is, if youll be so old by the end of the mortgage term that you might not be earning, you may not be able to extend.
Naturally, the lender will want to be reasonably sure that you will afford the monthly repayments for the entire length of the loan.
Can I Get A Mortgage At 55 Years Old
It may not be possible to get a mortgage at any age, because lenders often impose upper age limits on each mortgage. … The reality of this is that if you’re 50 and planning to retire at 60, you may struggle to get a mortgage. And if you do secure a mortgage, you may have to repay it before your 70th birthday.
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Should You Refinance Your Mortgage When Interest Rates Drop
Determining whether it’s the right time to refinance your home loan or not involves a number of factors. Most experts agree you should consider a mortgage refinance if your current mortgage rate exceeds today’s mortgage rates by 0.75 percentage points. Some say a refi can make sense if you can reduce your mortgage rate by as little as 0.5 percentage points . It doesn’t make sense to refinance every time rates decline a little bit because mortgage fees would cut into your savings.
Many of the best mortgage refinance lenders can give you free rate quotes to help you decide whether the money you’d save in interest justifies the cost of a new loan. Try to get a quote with a soft credit check which won’t hurt your credit score.
You could increase interest savings by going with a shorter loan term such as a 15-year mortgage. Your payments will be higher, but you could save on interest charges over time, and you’d pay off your house sooner.
How much does the interest rate affect mortgage payments?
In general, the lower the interest rate the lower your monthly payments will be. For example:
- If you have a $300,000 fixed-rate 30-year mortgage at 4% interest, your monthly payment will be $1,432 . You’ll pay a total of $215,608 in interest over the full loan term.
- The same-sized loan at 3% interest will have a monthly payment of $1,264. You will pay a total of $155,040 in interest a savings of over $60,000.
What Is The Maximum Amortization I Can Choose
The maximum amortization that you will receive is not calculated based on your age. Lenders have specific legislation that covers the maximum amortization that can be offered. For a home purchase with a down payment of less than 20%, the maximum amortization is 25 years.
If you are retired and purchase a home with 5% down, which you can certainly do if you have the income to qualify, then your maximum amortization is 25 years.
If you are retired and purchase a home with 20% down or more, then you could have a mortgage amortized up to 30 years. No matter your age, provided you have the income to qualify for the mortgage, your maximum amortization would be 30 years.
With 35% down, you could choose a mortgage or a home equity line of credit. The mortgage has a maximum amortization of 30 years, as before. However, if you set up a home equity line of credit, the minimum payment is interest only.
With a home equity line of credit, you have no amortization. Itâs effectively infinity! If you made the minimum payments of interest only then you will never pay that line of credit off!
That begs the questionâ¦
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How Much Are You Really Paying For A 50
Sure, when you take out a 50-year mortgage, your monthly payments will be lower. But youre extending your mortgage over a longer period of time, so youre going to pay way more in interest.
How much more?
Lets say you take out a 50-year mortgage for $200,000 at 6% interest. Your monthly payments would be $1,053 , but your interest paid over the life of the loan would be a little higher than $430,000!
Now, lets say you take out that same $200,000 at a 4.5% interest rate on a 15-year mortgage. Your monthly payments would be $1,530 . So even though youre paying $500 more a month, your total interest paid with a 15-year mortgage would be just a little over $100,000.
Thats rightthe 50-year mortgage would cost you over $330,000 more in interest than the 15-year mortgage. Thats literally enough for another house!
Affordability Rules And Older Borrowing
Since the Mortgage Market Review was introduced in 2014, applying for a mortgage can be more difficult for some – lenders have to assess affordability and take into account a number of factors, including age.
The aim is to make sure that people entering retirement don’t have unaffordable loans hanging over them. As people’s income tends to drop once they leave work and draw their pensions, the MMR encourages lenders and borrowers to settle mortgages before then. This may not always be possible or work for everyone however and some lenders compounded this by setting max age limits for mortgages to be paid back by. Typically, these age limits are 70 or 75 and left many older borrowers with few options.
A knock-on effect of these age limits is that the terms become shorter i.e. they need to be paid off quicker. And this means higher monthly payments, possibly making them unaffordable. This has led to accusations of age discrimination, despite the positive intentions of the MMR.
Since the introduction of the rules a number oflenders have extended age limits for paying off mortgages.
Halifax extended its age limit from 75 to 80 in May 2016 and from July 2016, Nationwide extended its age limit by 10 years to 85.
However, there are sometimes limits to these extensions.
According to Nationwide, the new upper age limit applies to its standard mortgages, but the loan amount would be limited to £150,000 and no more than 60% of the property value.
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What Lenders Offer A 40
Since these mortgages arent backed by traditional parties, 40-year mortgages may only be available from portfolio lenders or those with access to nontraditional investors. Portfolio lending is when a lender holds onto the loan until its paid off, instead of selling it to an investor.
Not many keep loans on their books currently, in order to have increased liquidity. Most loans are immediately sold to one of the major investors. For this reason, you may have a hard time finding someone offering a 40-year mortgage. There are a few places to look, including:
- Mortgage brokers
Should I Lock In My Mortgage Rate Today
Locking in a rate as soon as you have an accepted offer on a house can help guarantee a competitive rate and affordable monthly payments on your home mortgage. A rate lock means that your lender will guarantee you an agreed-upon rate for typically 45 to 60 days, regardless of what happens with average rates. Locking in a competitive rate can protect the borrower from rising interest rates before closing on the mortgage
It may be tempting to wait to see if interest rates will drop lower before getting a mortgage rate lock, but this may not be necessary. Ask your lender about float-down options, which allow you to snag a lower rate if the market changes during your lock period. These usually cost a few hundred dollars.
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