At every stage of a home loan, whether it is owner-occupied or for investment, it pays to review its costs and how it fits into your lifestyle. It is increasingly common for people to be continuing to pay off mortgages into retirement, so what do you do when your income is slowing down but you’re still making repayments? We answer your most common questions:
Is it possible to refinance a home loan close to or when I am retired?
Yes, it is possible, but there may be a few more hoops lenders will want you to jump through. This is where it pays to work with an experienced home loan broker who will navigate these issues for you and source lenders who will work with people close to or in retirement.
Why is it more difficult to refinance as a retiree?
Lenders view retirees as high risk as, generally speaking, incomes are lower than the average income. Although traditional home loans tend to have terms between 20-30 years, there are no fixed rules when it comes to retirees and loan terms. However those looking to refinance their owner-occupier or investor home loan over the age of 50 may need to apply for shorter loan terms when refinancing as lenders will want to be confident that applicants will still be alive to make loan repayments at the end of the loan. The good new is, there are real options for retirees that your broker can talk you through.
What sort of steps do I need to take to increase my chances of approval?
Understand what you want from your finance, and the options that are available:
Consider why you are looking at refinancing. Do you want to reduce the interest and fees that you are paying? Are you looking to fix your rate for more financial security? Are you looking to free up equity in your property for other uses? Or are you in the market to downsize your home to maximise your lifestyle?
In all these cases it’s important to weigh up the costs that come with refinancing, including possible break fees and government charges, to make sure that the savings you will make are worth the cost and more financially beneficial. A broker can help you determine whether this is case and present you with a range of options to suit your situation.
Consider what sort of bargaining power you may have:
One of lender’s main concerns in refinancing retirees is the lack of steady income. Do you have regular income from investments such as shares, a business or rent? The more regular income streams you have, the more straight-forward it will to be get approved. Lenders will also want to thoroughly analyse your credit rating and history, so it’s important to have an idea of where this stands and whether it could be improved.
When looking to refinance a home loan, it is important that you can prove that any income you have will continue throughout the life of the loan, even though by definition you will no longer be working or receiving any wage income. The table below shows the types of income that a retired person would typically receive and some considerations about each type of income:
|Type of Income||Proof Required||Proportion Acceptable||Comments|
|Dividends||2 Years Tax Returns||80%||Blue chip shares are preferred|
|Rental income||Rental Statement||80%||Commercial properties will be treated differently to residential|
|Interest Income||2 years Tax Returns||80%||Can only use this income if the cash is not required for living expenses|
|Superannuation Pensions||Superannuation Statements & Bank Statements||100%||It is important that capital is not being depleted|
|Old Age Pensions||Pension Statements & Bank Statements||100%||Receiving government benefits may indicate low assets or income and preclude a refinance|
Demonstrate you can make repayments and pay off the home loan:
Planning ahead is key to ensuring your finances service both the loan and your lifestyle as you enjoy your retirement. Lenders will want to see that you have considered your financial plan for the next 10-20 years (dependent on your proposed loan term) and that you have factored in the ongoing costs of paying a mortgage and your annual expenses. When doing this remember to consider extra costs that may crop up like medical expenses or, more enjoyably, travel. If making a plan seems daunting, you may wish to engage a financial planner to help you plan and manage your finances for retirement.
Although laying out long-term financial plans and refinancing a mortgage are not the first things you’d like to tick off your bucket list when you are approaching retirement, they are key to guaranteeing yourself an enjoyable and financially stable retirement in the future. If you think you might need to refinance and are in or approaching retirement, our home loan specialists would be happy to chat through the process. Call 1300 898 765 or send a quick online application here.