What Is A Mortgage Exit Strategy and What Do I Need To Know?

When you’re applying for a home loan, your lender might want to know how you plan to exit it. After all, it is a lender’s job to make you understand that you do have to plan your loan repayments and so on.

In this respect, you will need to come up with a proper mortgage exit strategy. You have to make sure that the financial path that you choose will be able to make you exit your mortgage on time and avoid missing any payments.

The Basics

A mortgage exit strategy is, basically, a backup mortgage repayment plan. It is called backup because all home loans come with a standard exit strategy – you simply pay off the mortgage over the duration of the home loan.

However, a lender will require a backup exit strategy in case the standard one is not enough or may not work out until the end.

For example, you are very likely to be required a mortgage exit strategy of your own if you are over 50, as the lender might hesitate to give you a home loan – given that the retirement age is 65.

Types of Mortgage Exit Strategies

Investment Properties

Lenders will usually accept as an exit strategy the sale of an investment property or even the access of equity in a certain investment property.

Downsizing 

Selling your primary owner occupied property to downsize into an encumbered more affordable security.

Shares 

When applying for a home loan, you can show the lender your share portfolio and present it as an exit strategy if you can sell your shares and pay off the home loan.

Superannuation 

Upon retirement, you will be able to access your super. This can be used as a part of a proper exit strategy.

Inheritance

Inheritance may be accepted as a mortgage exit strategy only if you have received it or are about to receive it during the term of your loan. The amount must also be enough to exit your mortgage completely.

Plans for Exit Strategies

In addition to all of the above, you can also inform the lender of certain actions that you plan to take and incorporate in your mortgage exit strategy.

Continued Work

If you plan to move into part-time work or continue to work full-time after the age of 65, then your lender should know this.

Shorter Loan Term

You can also ensure the lender that your loan will be paid off before you retire by taking on a shorter-term loan. Naturally, this will be influenced by your financial situation and ability to undertake higher payments.

Continued Investment Income

If you will still generate income after retirement, then you should let your lender know this. Ongoing rental income or shares that pay dividends may be seen as an acceptable mortgage exit strategy.

The Bottom Line

In short, you may need to think of a secondary mortgage exit strategy, especially if your lender has their doubts when it comes to you paying off your home loan. Informing them of the options that you have in terms of exiting your loan may reduce the risk they take by giving you financing.

So, when assessing your finances and properties, it is better to mention them all, since they can be used as parts of your mortgage exit strategy.

For more information or answers to your questions, you can always contact us. Our experienced staff will guide you through whatever process you need help with and make sure that you are working with the best possible lender for your needs! Contact us on on 02 9121 6247 or submit your scenario online.