Where an applicant is approaching retirement age, care must be taken in assessing whether the applicant can continue to meet their loan obligations beyond retirement without undue hardship. This requires applicants to detail a reasonable exit strategy on how they’ll either repay the loan at retirement and/or how they can service the proposed loan over a reduced term.
An exit strategy is required where:
The table below outlines scenarios to help you determine whether your client will need an exit strategy.
| Scenario | Outcome |
Individual borrower A: An individual applicant who:
| Satisfactory exit strategy is required as the applicant is 55 and they'll be 70 years or older at loan maturity or have shown intentions to retire prior to the loan maturity. |
Individual borrower B: An individual applicant who:
| Satisfactory exit strategy is not required. While the applicant is older than 55 years, full loan repayment will occur prior to being 70 years old and we haven’t been advised of an earlier retirement age. |
Joint borrowers, spousal relationship: Joint applicants in a spousal relationship where any income required to service the loan is earned by at least one applicant who:
| Satisfactory exit strategy is required as all income is required to service the loan, including income from the mature age borrower. However, an exit strategy wouldn’t be required if:
|
Joint borrowers, non-spousal relationship: Joint applicants in a non-spousal relationship where any applicant (regardless of whether their income is required to service the loan):
| Satisfactory exit strategy is required. Even though their income isn’t required to service the loan, they’ll be past the age of 70 years at loan maturity (or will retire prior to 70 years) and they’re not in a spousal relationship with the other applicant. |
These principles are used when assessing your customer's downsizing exit strategy:
| Scenario | Outcome |
A single applicant applies for a $500,000 loan to refinance their current owner occupied home worth $1 million. They intend to downsize in 10 years and purchase a dwelling worth $550,000 (e.g. a two-bedroom unit), based on today’s market. The loan will be repaid to $390,000 in 10 years based on minimum contractual repayments and current interest rates. Key facts:
| Exit strategy is satisfactory as there is enough equity/residual cash (equity less costs) available post sale and loan clearance to complete the intended new purchase of $550,000. |
Where an exit strategy is reliant on superannuation balances or other investment balances, evidence of these investment holdings will generally be required.
For other exit strategies, further documentation will typically be required on a case-by-case basis specific to your customer and their financial position.
For more information, refer to the Macquarie Residential Home Loans Credit Guidelines.
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