- The short answer – one is never too old for a 30-year mortgage
- The longer question – does a 30-year mortgage make good sense the older one becomes
It’s true that one is never too old to apply for and be approved for a 30-year mortgage simply because the Equal Credit Opportunity Act makes it illegal for lenders to discriminate against anyone on the basis of age. The bottom line for mortgage lending approval is that everyone and anyone, regardless of age, MUST prove they have the financial means to make monthly mortgage payments.
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Obviously, it’s much easier to prove that one can make monthly mortgage payments when one is working and earning a regular paycheck than if one is retired and not earning a paycheck. Whatever a retiree’s income (Social Security, a pension, rental property income, investment income, etc.), that income MUST indicate the ability to pay a monthly mortgage AND basic living expenses.
According to The Motley Fool’s Dan Caplinger, there are five things a retiree ought to consider prior to applying for a 30-year home purchase loan:
- Retirement income and other assets must indicate sufficient cash flow to cover monthly mortgage payments now and into the future.
- If the retiree chooses to live in a location where property taxes increase annually, an increasing ancillary tax liability can render a once affordable home into an unaffordable home. The retiree and lender have to make sure there will be enough income to cover a higher and higher annual property tax bill as well as monthly mortgage payments.
- What, if any, financial impact could the death of a spouse have on retirement income? Some private pensions cease making payments at the death of a working spouse. Similarly, there may be a decline in Social Security benefits received by a surviving spouse.
- Retirees ought to look at different mortgage options, such as a 15-year fixed mortgage, that may be more appropriate based upon individual situations and plans.
- Retirees need to look at what happens to a home and its mortgage if/when both spouses of the couple die. For example, if the couple’s children plan to sell the house, there is no problem. If the couple’s children intend to stay and live in the house, setting up a life insurance policy to pay for the mortgage on the house could be a good option so the children would not be burdened with a mortgage responsibility they likely don’t want or cannot afford.
Thanks to The Motley Fool’s Dan Caplinger for content ideas.