The affordability of your mortgage is currently given. But how will this look in retirement?
The affordability of your mortgage changes as you get older. Especially when you reach retirement age, your income is replaced by the AHV and pension fund pensions or capital withdrawals. Often, your income decreases considerably at retirement age. But nevertheless, even in retirement, calculative housing costs may not exceed one third of your income. The imputed interest is 4.5 to 5%, depending on the lender, plus about 1% of the property value for maintenance costs.
The income therefore decreases, but the imputed costs remain constantly high. How is this supposed to work?
Most banks and insurance companies therefore ask their clients to repay their mortgage to a loan-to-value ratio of 65% by the time they reach retirement age. This means that the mortgage may only amount to a maximum of two-thirds of the market value of the property. However, if the affordability in old age is not given at a 65% loan-to-value ratio, the loan-to-value ratio must even be lower than 65% in this situation.
Our tips for mortgages in old age:
For the reasons mentioned above, we recommend that you plan early for your financial situation in old age. In this way, future income from AHV and pension funds can be calculated and compared with the expenses and imputed costs of the mortgage. With early pension planning, the amortisation payments can be adjusted up to retirement age so that affordability in old age is not a problem and the costs in old age can be kept as low as possible.
Careful selection of maturities in old age
When extending mortgages in old age, it is definitely worth choosing the terms carefully. Planning in old age is becoming increasingly difficult. How long will you live in your own house? Will you leave the property to your children or rather sell it? In principle, it is advisable not to commit to mortgage terms for too long in old age. However, if the property is signed over within the family, then transferring the mortgages to the new owner can also be quite interesting. If such a scenario is realistic, then in principle there is nothing to be said against a longer mortgage term.
Compare providers – banks look at affordability in old age differently
Not every bank applies the same rules when assessing affordability in old age. For example, the rates for imputed costs vary from provider to provider, as does the maximum housing costs: many banks allow a maximum of 1/3 of income, while others are more accommodating and calculate 35 to 40%.
If you want to know more about this topic or if you even need more advice in this matter, contact HYPOHAUS today so that we can analyse your personal situation together. From over 50 providers, we will find the one that suits you best and offers you the best mortgage extension quote.