Can I get a home loan as a pensioner?

author-avatar By on August 31, 2021
Can I get a home loan as a pensioner?

Whether you’re downsizing, retiring, or seeking a seachange, there are a number of home loan mortgage options for seniors and pensioners.

Some things in life get simpler as you get older. Conversely, some things seem to get trickier, like sorting out your finances. A potentially tricky area to navigate as you approach retirement is the family home, what to do with it, and how to get a new home loan as you get older.

If you’re older than say, 50, you’ve probably already heard of terms such as 'reverse mortgages' and the 'pension loan scheme'. Find out how to get a mortgage as a senior or pensioner, and find out how these different products and strategies can work for you as you go grey.


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Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval

VariableMore details
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
VariableMore details
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
VariableMore details
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • Refinance only. Fast online application
  • No Nano fees. Free 100% offset sub account
  • Mobile app, Visa debit card & instant payments
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • Refinance only. Fast online application
  • No Nano fees. Free 100% offset sub account
  • Mobile app, Visa debit card & instant payments
VariableMore details
YOU COULD WIN $100k TO PAY DOWN YOUR LOAN*

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • For a chance to win $100K towards your home loan, apply with Athena before Oct 31 & be approved by Dec 15
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
YOU COULD WIN $100k TO PAY DOWN YOUR LOAN*

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • For a chance to win $100K towards your home loan, apply with Athena before Oct 31 & be approved by Dec 15
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
VariableMore details
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^

Rates correct as of October 27, 2021. View disclaimer.


Pensioner Home Loans Explained

There’s nothing particularly secret the banks don’t want you to know about home loans as you approach retirement. Think of it from their perspective - to be brutal, they’re going to consider your risk of dying while still owing potentially hundreds of thousands of dollars to them, and your estate’s ability to pay that back.

Older people - generally anyone over 50 - are seen as higher risk to banks and lenders. Before approving a loan to an older person, many lenders require the borrower to have what’s called an 'exit strategy'. And no, it’s not how you’ll jump out of a plane in the event of an emergency.

What is an exit strategy?

An exit strategy is essentially a plan you present to your bank or lender on how you’re going to pay off your home loan in retirement. Many lenders require some form of exit strategy when the borrower is older than 50. The strategy may be more acute as you get older. Being that most regular home loan terms are 25-30 years, there are no guesses as to why. Many lenders also want older people totally off their books by the time they are around 80. Eighty minus thirty is… wow, fifty!

Various ways you can bolster your exit strategy is to:

  • Provide evidence you can pay off the home loan in much less than 25-30 years.

  • Show them your superannuation balance and how you can continue to pay off a home loan in retirement.

  • Show them your existing property portfolio, and the potential capital gains from selling these off, whether you’re downsizing or just paring down assets.

To put a long story short, a pension by itself is probably not going to be enough to satisfy a lender's requirements. However, just because you’re on a pension doesn't necessarily mean you're short of money - a bank is going to assess not only your income or lack thereof, but your assets - superannuation, existing properties and so on, as well as your ability to pay off a home loan in less than 25-30 years.

Pensioner or Senior Home Loan - Exit Strategy Case Study

Penny Shun is 50 and looking at getting a home loan worth $500,000 for her new investment property she’s worked hard to find.

Her bank, Batbank, has asked her for an exit strategy, because the loan she's applied for is a 30 year one, and they want to know that she would have the means to pay it off well before she’s 80. She also said she plans on retiring at 65 after a long career tending alpacas.

She shows Batbank the value of her existing property - a home she bought 20 years ago in Mosman that has increased in value just about ten-fold. She has no other debts, and her super balance is already $500,000 with 15 years of work left, earning $150,000 per year. By her calculations, she’s earning enough now that she can comfortably afford to pay off the home loan within 20 years.

While she'll have no employment income for the last five years of the loan, Batbank determines that her super balance, along with the value of her current home, means she can more than comfortably service the $500,000 loan on her investment property.

Other Housing Finance Options for Seniors or Pensioners

Applying for a home loan when you’re older can be a little tricky sometimes, but luckily there are a few options that could be workarounds.

Bridging Loans

As the name might suggest, bridging loans bridge the gap in financing between selling your old home, and buying a new one. This covers a short term gap in any funding you may have while you’re waiting for your old home's sale to settle. This form of financing is contingent on you selling or downsizing your old home to buy a new home. Bridging loans also attract steeper interest rates and shorter terms than regular home loans, but if all you are waiting on is your old home to settle, paying it off quickly to minimise the interest cost usually isn't an issue.

Reverse Mortgages

A reverse mortgage unlocks the equity in your home so you can access the money to fund other pursuits. These loans usually only apply if you’re over 60, and could attract steeper interest rates. The way this is designed to work is that you repay the loan in full when you die through your deceased estate. This helps provide steady cashflow in retirement, but there's a lot of considerations to make.

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, rather than a personal loan which usually has a fixed term of repayment. The ‘'revolving door' type of deal with a line of credit loan means the convenience 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 than the hundreds of thousands usually required for a new home.

Government Assistance - Home Ownership in Retirement

There are a few government-based financing options to sweeten the deal when buying or owning a home when you get older or approach retirement.

Pension Loans Scheme

The PLS is a scheme that lets older Australians get a non-taxable fortnightly loan from the Federal Government. It uses real estate as security for the loan, and you can choose the amount you get from the government. The PLS at the time of writing charges an interest rate of 4.5%, compounding each fortnight on the outstanding loan balance.

Housing Finance Loan

Your state government may offer housing finance to those who can afford to build or buy a home but cannot access finance from a bank or lender. In Queensland, for example, the loan amount is based on incomes, terms of the loan, current market interest rates, and the value of the home you want to build or buy. It comes with a minimum deposit requirement of 2%.

Downsizing Super Contributions Scheme

A fairly recent addition to the retirement income landscape, the scheme allows those aged 65-plus to make a 'downsizer' contribution into their superannuation of up to $300,000 using the proceeds from selling their home. This does not count towards your contribution caps, however it will determine your eligibility for the age pension. If you’re downsizing, using this could be a good opportunity to funnel some of that money into your super to look forward to in retirement.


Photo by Sam Williams on Unsplash

Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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author-avatar
Harrison is Savings.com.au's Assistant Editor. Prior to joining Savings in January 2020, he worked for some of Australia's largest comparison sites and media organisations. With a keen interest in the economy, housing policy, and personal finance, Harrison is passionate about breaking down complex financial topics for the everyday consumer.

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