Erin Delahunty - 4 Oct, 2021

Can a pensioner get a home loan?

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Can a pensioner get a home loan? The short answer is … yes. Whether it be the aged pension, or even the disability or carer’s pension, options for a home loan for pensioners are definitely out there.

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The main thing to keep in mind is that a pensioner will usually be seen as a higher risk, but there are lenders who specialise in dealing with “non-standard” customers.

They might not be called disability pension home loans or Centrelink disability pension home loans specifically, but there are loan choices.

Start the journey by considering your circumstances carefully. Be prepared to put in a little more time and effort, as pensioners seeking home loans may face tougher lending criteria, higher interest rates, or may not be able to borrow as much as someone on a regular wage or salary.

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Considerations for a home loan for pensioners

As with any financial decision, take some time to consider your position before applying for a home loan. It might seem obvious, but make sure you ask yourself, can I afford to pay it back? 

Look at your assets and pension type to get an idea of where you sit. In some cases, lenders will regard the aged pension, disability pension, or carer’s pension as genuine income, but, again, you’ll have to show you can make the repayments.

It can also be good to step back and map out your future goals. What part does a home loan play in your overall planning? Weigh up the pros and cons of a home loan before moving ahead.

If you have assets and feel you meet lending requirements, then it’s time to discuss options with a lender. It can be a good start to discuss what options are available with a mortgage broker.

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Types of home loans for pensioners

The home loan options for pensioners are the same as for any other person, the difference in this situation will most probably be your financial status and what type of risk the lender sees in you.

Let’s look at some of those options:

  • Variable-rate home loan: A common choice for Australians, the variable rate loan’s interest adjusts with the market rate. So, when the market rate is low, so too is this loan’s interest rate. To be eligible for this loan, you’ll need to have an income that meets lending requirements.
  • Fixed-rate mortgage: The fixed-rate loan gives you more security as the interest rate stays the same for a fixed term. You’ll know exactly how much you’ll need to repay monthly. However, this loan is like the variable rate loan in that you’ll need to meet lending criteria and make regular repayments.
  • Line of credit loan: A line of credit loan is a funding line that uses property equity. Your loan approval is for a specified amount and you can draw on this when needed. You’ll then only pay interest on the amount used. For example, if you have a line of credit for $150,000, but use only $25,000, then you’ll only pay interest on the $25,000.
  • Investment home loan: An investment property could be a way to achieve additional income separate from your pension. It could be easier to obtain than other loans as well because the income from the rental property will be taken into account with your other income when lenders determine if you can repay the loan. This extra income can also mean you could be eligible for a shorter loan period. It can be a good idea to get financial advice when considering this option as any extra income may affect your pension level.

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How could you get approved for a pensioner home loan?

Lenders will still require you to meet the standard criteria for borrowers before approving a loan. On top of this, they may also ask for some extra documentation before moving ahead.

This documentation can include evidence of your ability to provide a deposit, statements of your bank account showing a record of Centrelink payments, and statements from Centrelink verifying the status of your pension.

If you have the income or are applying for a smaller amount of money, you could consider a standard mortgage as this could give you a lower, standard interest rate rather than the higher rates sometimes associated with higher-risk loans.

You could also save money in the long run by shortening the loan term.

If you can’t meet the criteria for standard mortgages, there are lenders who specialise in customers in more difficult circumstances.

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How do I compare home loans?

There are five important aspects to look for when you compare loans. These are interest rates, flexibility, eligibility, charges and terms. Let’s take a look at each of them:

  • Interest rates: The lower your rate of interest, the less your loan will cost you. So, look for the lowest rate possible when also taking into account other factors such as facilities and varying terms.
  • Flexibility: Your home loan needs to meet your requirements. It should enable you to make extra repayments, adjust your repayment schedule and have facilities. Consider this when looking at fixed-rate loans as they may not have some of the flexibility available in variable-rate loans.
  • Eligibility: Always look at the requirements for a home loan, as not all loans suit pensioners. For example, you may need a regular income or assets to meet the lending criteria. If you don’t have the circumstances required for some loans, you can disregard them.
  • Charges: All loans incur fees, but some are higher than others. Ensure you get a full picture of the charges involved.
  • Terms: Lenders typically have varying loan lengths. As a result, compare these terms to each other to find the length that suits you.

Want to know more about home loans for pensioners?

Do you want to know more about home loan options available to pensioners? Then contact eChoice, we can help you determine if you’re eligible. Our brokers also have access to hundreds of home loan products, so we’ll find the right mortgage for you.

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