When Are You Too Old for a Mortgage?

The Equal Credit Opportunity Act is clear: It is illegal to discriminate against someone who wants to borrow money based on age. You cannot be denied a mortgage or mortgage refinance loan because you are too old.

You can, however, be denied if you do not financially qualify to take out the loan. For more see: Mortgage Basics.

Qualifying

If the bank or mortgage company determines your income is insufficient, you can be denied the loan. The same applies to your credit score: If it’s too low, you may be out of luck.

If your FICO score is 740 or higher, you should be fine. If it is under 640, you may qualify for a mortgage, but at a higher rate.

Some lenders view pensions, Social Security benefits and other forms of fixed income as a problem. Others see fixed income as “certain income” and are happy to grant the loan.

Your debt should be no more than 43% of gross monthly income, but even if that’s the case for you, your budget and personal finances are what really determine whether you can afford the mortgage. 

From this point on, it’s not a matter of not being allowed to obtain a mortgage, but rather whether it’s a good idea for you.

Down Payment

In most cases you will have to make a down payment of several thousand dollars on a mortgage. It could come from profit on the sale of your current home – in which case it should be no problem.

If you don’t own a home to sell, or if you won’t clear enough on the sale of your current home to make the down payment on a new one, you may have to borrow from your savings, which could have a negative effect on existing retirement income. 

Is Your Home Paid Off?

If you are currently mortgage free you may be hesitant to take on house payments again. This is purely a personal decision, but it’s one worth considering. 

The notion of taking on a mortgage late in life is further complicated by the fact that mortgages, by definition, are front loaded with interest. You may barely make a dent in the principal in the first few years. That could be a problem if you later decide to sell and are not able to make a profit – or even get back your original investment. 

Length of Stay

You may consider taking out a new mortgage or refinance to obtain a lower interest rate. Or you may decide to sell your existing house to downsize for easier upkeep. These are both good reasons for taking on a mortgage later in life.

Be aware, however, that the advantage only lasts as long as you keep the mortgage.

Disposing of a home you recently purchased or refinanced could end up costing you more than staying put, both physically and financially.

This includes the potential of suffering accident or illness and having to move into an assisted-living facility – or even moving across the country to be with grandchildren or other family. 

Cash Flow

Deciding whether to take out a mortgage can also depend on what happens to your cash flow in the event you or your spouse dies. In many cases, the net result is reduced income for the surviving spouse.

Other cash flow factors include the amount of credit card or other debt you have and whether you use part of the proceeds from the sale of your current house or mortgage refinance to pay off that debt. The net result could be reduced cash flow just when you have taken on a mortgage late in life. 

Fear of Fraud

As they age, people become more frequent targets of fraud. Concern about being a fraud victim could cause you to hesitate when it comes to taking on the debt associated with a mortgage.

Fear of fraud shouldn’t necessarily keep you from applying for a mortgage, but it should make you especially wary and careful in all financial dealings. 

Estate Issues

You may also hesitate to take out a mortgage later in life out of concern that you may be leaving a mess for your heirs to clean up. This is another personal decision, but one that you may want to involve your family in to make sure everyone is “in the loop.”

Proper planning and an up-to-date will can help avoid problems in the event you die before the mortgage loan is paid off. This way your children or heirs may be able to avoid the unpleasant reality of the bank taking possession of your home and selling it to pay off the existing debt. 

For more see: 5 Reverse Mortgage Scams.

The Bottom Line

Once you get past financially qualifying for a mortgage, understanding other age-related factors can help you decide whether taking out a mortgage loan is the right move for you.

This involves carefully considering everything from the upfront cash needed for a down payment to how long you plan to stay in your new home as well as everything else mentioned here.

As with all potentially complicated financial decisions, it’s a good idea to seek advice from a trusted financial advisor before you take final action. If you decide to go ahead, you may want to investigate the Best Mortgage Companies Friendly to Retirees.