In debt at 105-years-old

The prospect of being in debt for a 30-year standard home loan period is cumbersome for most, so imagine carrying this debt into the ripe old age of 105.

That’s the possibility Australian banks are currently making available to some borrowers aged up to 75-years-old – leaving them with home loan debt they will be paying off well past their prime earning capacity years.

Data collected by RateCity shows that almost 90 percent of lenders currently have no age restriction attached to their home loans and the remaining 10 percent who do have a cut-off age have it set at an age when most have retired, at 65 to 75-years-old.

So are these stretched lending terms, and the Federal Government’s plans to increase the retirement age to 70, enabling Australians to achieve their household dreams later on in life or simply setting many up for a lifetime of debt they are unlikely to be able to pay off?

Alex Parsons, CEO of RateCity, warned that getting into debt at such a late stage in life could be dangerous for many, considering most people’s income at that point in their life will be consistent of superannuation.

“A concerning factor for many, who are borrowing past the age of 65, is their limited capacity to earn a strong enough income to meet hefty home loan repayments,” said Parsons.

The latest Australian Bureau of Statistic’s life expectancy figures show those who were 65-years-old between 2009 to 2011 are expected to live to 87 years of age for females and 84 years for males.

Taking these statistics into considering, if a 75-year-old can apply for a home loan that would mean they have approximately twelve and nine years, respectively, to pay off their loan before their expected death – a period much shorter than the standard 25 to 30 year home loan terms.

In the UK new research has revealed that retirees are taking out mortgages that will outlive them in a new investment move that allows their children to get into the property market by inheriting their property – and home loan debt, long after they are gone.  

Many of the UK’s retired loan applicants co-sign a loan with their children to allow them to increase their borrowing capacity. This then precariously increases their joint debt which one party becomes solely responsible for if the other were to pass away or default on the loan.

Who will be left to foot the bill?

But what would happen in Australia if your parents passed away with outstanding debt?

Not all debt can be inherited – so if your parents were to pass away it’s unlikely you would be left with their credit card or home loan debt. However, if you have co-signed with you parents then you could find yourself inheriting the full brunt of their debt after they have passed away or if they have defaulted on their loans.

The same rule applies to spouses who share joint accounts and as a result, joint debt.

So always do your research and show caution before signing up to borrow any large amount of money. Make sure you can make the repayments and that you completely understand your legal and financial obligations.

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