Estimating Francis’s Borrowing Capacity for Property Investment
Francis, now 80, owns a mortgage-free Perth home valued at $1 million and will have $400 000 in cash from selling an investment property. Below are three ways he could re-enter Australia’s property market.
1. Standard Investment Loan
If Francis uses only his Age Pension ($1 867/month) plus $1 667/month in rental income, his total monthly income is $3 534. Lenders typically allow up to 30% of income for repayments (≈$1 060/month), which supports a loan of about $120 000–$130 000. Together with his $400 000 cash, he could target properties worth $520 000–$530 000.
2. Reverse Mortgage
By drawing up to 20% of his home’s value (~$200 000) via a reverse mortgage, Francis could access around $600 000 in total purchasing power without having to make regular repayments.
3. Cash Purchase
Alternatively, he could use the $400 000 cash to buy a property outright, eliminating borrowing costs and obligations.
Key Considerations
- Age Restrictions: Most lenders require loans to mature by age 70–75, limiting conventional options for an 80-year-old.
- Income Limits: Only Age Pension and rental income count toward serviceability.
- Equity Leverage: His $1 million owner-occupied home provides strong security for any loan.
Recommended Strategy
- Use cash as a deposit or for an outright purchase.
- Explore reverse mortgage products to access additional equity.
- Focus on Perth properties in the $400 000–$600 000 range with 4–5% rental yields.
- Consult a mortgage broker who specializes in senior lending.
With his solid equity and clear plan, Francis can re-enter the market by selecting the right lending option and investment-grade property. For tailored advice, visit Investor Profile.
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