Like it or not, one of the key considerations when a financial institution approves a mortgage loan is the age of the applicant as it is crucial in determining the loan’s tenure, mortgage’s interest rate and loan margin.
In Malaysia, the maximum term of a mortgage loan is 35 years or until the loan applicant reaches a certain age, which is usually 65 or 70 years old, depending on the health conditions and the applicant’s financial background. This is why age does matter in the success rate of a mortgage application the younger the applicant is, the lower the risk to the bank.
However, it does not mean that an older applicant or a retiree is not able to get a mortgage loan at all. Here are some tips on how to increase the success rate when an elder applicant applies for a mortgage loan.
1. Build strong financial background
The capability of repaying the mortgage is the No. 1 consideration when a bank approves a mortgage loan. Therefore, banks will need to compute the existing liabilities or total debt obligations per month versus the monthly household income to ascertain that the loan borrower will be able to repay the mortgage after deducting all the fixed expenses, such as car loan, personal loan, outstanding credit card balances and other commitments.
To recap, an applicant’s Debt Servicing Ratio (DSR) should not surpass 70% of the net income.
2. Lower the risk
No doubt that an older loan borrower carries a higher risk to the bank hence to minimize the overall risk level, it is important to show how well you have repaid the loans in the past to prove that you are a good payer.
Bank examines the credibility of a borrower through CCRIS as it is the database that reveals loan repaying patterns in the past as well as if a lender has initiated legal action against the borrower.
However, it does not mean that a borrower who has no debt or loan history in the past stands a better chance in applying for the first mortgage loan. In the eyes of the bank, lending a big amount of money to someone who does not have anything record of repaying to track.
3. Choose the right property
Selecting the right property is the first and most important step if you are planning to buy one near retirement age or after retirement. For example, if the asking price of the desired property is RM600,000. However, the bank market valuation of the property is only RM500,000, meaning that the maximum loan approval will not be RM540,000, assuming the loan margin is 90%, but less than RM500,000.
In other words, the property’s bank valuation determines the mortgage’s maximum value. And it impacts the success rate of applying for a mortgage loan for a senior borrower.
[Image source: Photo by Pixabay]
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