Refinancing - 28 Jan, 2020

What to know about refinancing during retirement?

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There is an entrenched belief that mortgagors cannot refinance during old age – and that’s mostly true. Older Australians are often categorically put into the “too risky” pile, but that doesn’t mean it’s impossible.

As Australians stop working and retire with debt, the chance of meeting repayments significantly drops.

From 2000 to 2010, approximately half a million Australians age 50 and over lost their homes.

Convincing a lender to refinance once you’ve already retired dampens your prospects, but here’s what to know about refinancing during retirement.


More Australians are retiring with debt

Significantly more Australians are retiring with debt, according to a recent study by the Australian Housing and Urban Research Institute (AHURI). With house prices rising and wage growth on a slower trajectory, many retirees are struggling to keep up with mortgage debt.

Between 1987 and 2015, the average mortgage debt for over-55s jumped from $27,000 to over $185,000.

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It was found that mortgage repayments were the largest expense for retirees, eating up to one third of their spending. With ongoing repayments some retirees are left without enough funds to cover basic living costs. About 8% of older Australians with mortgages have reported falling behind on utility bills, compared to the 3% of outright homeowners.

Looking at data from the Bureau of Statistics’ survey of income and housing, there are similar findings with an increase in homeowners owing money on mortgages across every age group between 1990 and 2015. But, the biggest rise in debt is among homeowners approaching retirement.

Related: Should I refinance my mortgage to buy an investment property?

Why refinance at all?

The attractive reason to refinance is the cheaper interest rate. With that said, it is crucial to crunch the numbers. There are many fees associated with refinancing including: closing fees, setup fees, title insurance and if it’s early in the loan, lender’s mortgage insurance.

Refinancing could also allow you to consolidate debt. Borrowers can save money by rolling higher rate debts from something like a credit card to a mortgage of a lower-rate. This may also help you better budget with only one bill and fixed sum to pay.

The first step for older Australians though, should be to speak with their current lender and ask for a more competitive deal.

While these benefits may seem appealing, refinancing is not for everyone. For answers to more frequently asked question on refinancing, you can read our guide here.

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Related: Why property ownership is vital to a secure retirement

How older borrowers can win over lenders

Knowing how much harder it is to refinance or secure a loan at a mature age, borrowers will need to offer a strong case on their reliability. Here are some tips to get you started.

  • Shop around. Different lenders have different attitudes on how they view older Australians. Call around or speak to a broker to find the lowest rates and fees. If you’re approaching the end of your loan term, the cost with exit and joining fees may leave you worse off.
  • Decreased spending. It will also be useful for the borrower to prove they have decreased their spending, with a better saving rate and ultimately better chance of repayment. 
  • Maximise your income. Borrowers will also need to show some pool of money or income. While a pension counts as an income, this will likely not be enough. Older Australians wanting to refinance should think about selling assets or drawing on shares to improve their case. Essentially more assets means a greater chance of paying off your loan.
  • Working an extra year might help. If you haven’t yet retired, plans to work a little longer is undoubtedly attractive to lenders.
  • Superannuation. You possibly could dip into your superannuation to show you have a large sum of money to draw from. If the budget is right, why not pay a lump sum and save yourself from accrued interest.

Related: 5 retirement hot-spots for your next investment property

Words by Michelle Elias

Whether looking for your first home, an investment, or wanting to refinance, eChoice can help. Our friendly brokers have access to 100s of loan products from over 25 lenders. Speak to us about securing your ideal mortgage today.

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