- It's possible to get a home loan as a senior or pensioner, but it may take some extra steps
- Anyone over 50 will likely have to supply their lender with an 'exit strategy'
- This should outline how you intend to pay off the loan after you stop working
- There are alternative finance options for older people including government assistance schemes
Some things in life get simpler as you get older but getting a home loan can be trickier.
This is going to sound harsh but once you reach a certain age, lenders will be worried you're going to die before paying off your mortgage. That's why it may be a little more difficult to secure a standard 30-year home loan at the age of say 50.
But it's certainly not out of the question.
Pensioner Home Loans Explained
Anyone over 50 is generally considered a high-risk borrower. That's not to say you can't get a loan but you'll likely have to present your lender with an 'exit strategy'.
What is an exit strategy?
An exit strategy is essentially a plan on how you're going to pay off your home loan after you stop working.
Many lenders require some form of planned exit strategy when the borrower is older than 50.
Many also want older people totally off their books by the time they are 80. Eighty minus 30 is… wow, 50!
What you may need to show in an exit strategy?
Provide evidence you can pay off your home loan in much less than 25-30 years
Show your superannuation balance and demonstrate how you can continue to pay off a home loan in retirement
Show details of an existing property portfolio and the potential capital gains from selling these properties off down the track
- Outline future plans to downsize which may free up funds to pay off your home loan
Beware the restrictions that apply
It was hard to find information on smaller loans such as a $120,000 loan - one online calculator didn't even accept prices under $250,000.
The second shock was when a real estate agent showing me through a property suggested that a bank would be unlikely to lend on a property under 50 square metres.
With a decent deposit, say 30%, repayments on a city studio or a unit in a regional town over 15 years - with a bit of super to exit - could be similar to rental rates in the current market, even considering body corp or strata, council rates and utilities.
Do your own homework, get out your calculator and stay in control of your money. Waiting for the answers to come to you is not a plan – go find them.
Will a pension be enough to obtain a home loan?
Generally, lenders will consider an age pension like any other form of income but this will come down to individual lenders' eligibility criteria and individual circumstances.
To cut a long story short, a pension on its own is probably not going to be enough to satisfy most lender's requirements.
Other assets can help
But just because you're on a pension doesn't mean you're financially challenged. When you're of a certain age, a lender will not only look at your income but also your assets. That includes superannuation, properties you already own, other financial assets such as shares, and so on.
It will then assess whether you'll be in a position to pay off your loan before the standard 25-30-year loan term.
If you're only wanting to borrow a modest amount and you have income from other sources, you may be able to apply for a home loan like any other borrower. If that's the case, you might want to check out what some of the best going rates are via the table below:
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Extra Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.94% p.a. | 5.98% p.a. | $2,978 | Principal & Interest | Variable | $0 | $530 | 90% |
| Promoted | Disclosure | ||||||||||
5.89% p.a. | 5.80% p.a. | $2,962 | Principal & Interest | Variable | $0 | $0 | 80% |
| Promoted | Disclosure | ||||||||||
5.99% p.a. | 6.02% p.a. | $2,995 | Principal & Interest | Fixed | $0 | $0 | 60% |
| Promoted | Disclosure | ||||||||||
5.93% p.a. | 5.93% p.a. | $2,975 | Principal & Interest | Variable | $0 | $395 | 70% | Disclosure |
Pensioner/Senior Home Loan - Exit Strategy Case Study
Penny Shun is 50 and looking at getting a home loan of $500,000 for an investment property.
Her bank has asked her for an exit strategy because the loan she's applied for has a 30-year term. It wants her to demonstrate she would have the means to pay it off well before she's 80, particularly as she's planning to retire at 65.
She shows the bank the value of her existing property - a home she bought 20 years ago in a leafy suburb that has increased in almost ten-fold in value. She has no other debts and her super balance is already at $500,000 with 15 years of work left, where she's currently earning $150,000 per year.
By Penny's calculations, she's earning enough to comfortably pay off the home loan within 20 years.
While she'll have no employment income for the last five years of the loan, her bank determines that her super balance, along with the value of her current home, means she can more than comfortably service a $500,000 loan on an investment property which will also generate some rental income.
Exit strategies that won't fly with lenders
There are some strategies that probably won't cut it with lenders though. These include:
- future inheritances
- the sale of a business
- any predicted increase in your current wages or a pre-retirement bonus
- any court/family settlements
- pending workers compensation claims
In other words, anything that can't be guaranteed.
Other home finance options for seniors or pensioners
Applying for a home loan when you're older may not see you tick the boxes of all lenders, but luckily there are a few options that could be workarounds. These, of course, will depend on your individual circumstances. It's also highly recommended you seek independent financial advice before signing up to anything.
Reverse Mortgages
A reverse mortgage essentially unlocks the equity in your home so you can access the money you may need for other purposes.
It does this by advancing you funds against the value of your home which you don't have to pay back until you die. At that time, the loan will be repaid in full from your deceased estate.
These types loans are usually only available if you're over 60 and attract generally steeper interest rates. They can help provide steady cashflow in retirement, but there are many considerations you need to take into account beforehand.
See what the federal government's Moneysmart website has to say about reverse mortgages and home equity release.
Line of Credit Loans
While not technically tied to your home, a line of credit loan is commonly offered to retirees or those nearing retirement.
A line of credit loan essentially lets you access extra funds whenever you want up to a certain amount. It can be an alternative to a personal loan which usually has a fixed term of repayment.
This 'revolving door' type of loan also means the convenience of accessing often comes at a price in the form of higher interest rates or fees.
Another consideration too is that these types of loans usually max out around $50,000, rather less than what you might need if you're looking to fund a home.
Bridging Loans
As the name might suggest, bridging loans bridge the gap in finances between selling your old home, and buying a new one.
These type of loans are designed to cover any short-term gap in funding while you're waiting for your old home to sell or settle.
This form of financing is contingent on you selling or downsizing your old home to buy a new one. (See downsizer superannuation contribution below.)
But bridging loans also attract steeper interest rates and shorter terms than regular home loans, with the interest compounding over time.
If you are just waiting on your old home to settle, paying it off as soon as the sale goes through can minimise the interest costs. But they can balloon if there are any hitches with the sale process. Beware.
Government assistance
The federal government also offers various forms of assistance or concessions to those looking at finance options in older age.
Home Equity Access Scheme
The Home Equity Access Scheme (formerly the Pensioner Loan Scheme) allows eligible pensioners to apply for a non-taxable loan from the federal government.
The scheme uses Australian real estate as security for the loan and you can choose how much you can borrow - up to a limit of 150% of your maximum pension rate. The amount you can access will also depend your age, how much equity you have in your property, and how you want the funds delivered.
You can get the loan as either fortnightly payments, a lump sum payment in advance, or a combination of both.
As with any loan, you must repay it, along with paying for the usual fees and legal costs but these - and the interest rate charged - are typically considerably lower market home loans rates.
See further details about the Home Equity Access Scheme from the Services Australia website.
Downsizer Super Contributions
Another financing option to consider if you're 55 or over is the so-called 'downsizer superannuation contribution'. This allows people to sell their primary place of residence (they must have owned for at least 10 years) and make a 'downsizer' contribution to their superannuation of up to $300,000. (It can be $300,000 each for couples.)
The amount doesn't count towards your contribution caps, however it may affect your eligibility for the age pension. You don't have to actually buy a smaller - or a cheaper - home to make the contribution.
If you're looking to sell your home, it can be a good opportunity to funnel some of the money from the sale into your super to boost your retirement nest egg.
There is more information about the downsizer superannuation contribution on the Moneysmart website and via the ATO.
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