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Types of loans for pensioners

Tracey Franks  
May 25, 2024 icon-time-to-read 5 MIN

In 2024 there are two stark facts facing retirees. The first is that more and more homeowners are moving into retirement with a mortgage. And the second is that the vast majority of these homeowners have no desire to downsize in order to reduce this debt.

So what is the answer? How can retiree homeowners stay where they are and cover their debt? Is this even possible?

Many things get better as we age. Our ability to not ‘sweat the small stuff’, our contentment levels, our appreciation of the day-to-day moments all seem to improve. But some other aspects of life can present challenges. Health issues can arise, as can challenges to our ability to get any job we feel like applying for.  Sadly, ageism is real and present in the workforce.

And then there’s the matter of access to funding. It’s often not spoken of, but loans for pensioners are few and far between. In fact, try getting a home loan if you are older than 60.  That’s when doors can start to close.

Why is it difficult for older Australians to access a home loan?

Home loans are based on a few different factors, but the main requirements are:

  • the size of your deposit (usually referred to as the Loan-to-Value Ratio or LVR)
  • your current earning power (i.e. ability to cover repayments) and
  • how many years you are likely to retain this earning power – in other words, how long before you retire

So loans for pensioners or people aged over 60 who may only be working for a few more years are unlikely to be approved by institutions looking at lending over a 5, 10 or 15 year timespan. And if your earning power is limited to the rate of a full Age Pension ($28,514 for a single or $42,988 combined for a couple, per annum) then you will find it hard to convince any lender that you are capable of covering mortgage repayments as well as your fixed household outgoings. If you do qualify for a loan, it is possible that your age means you will be charged a higher interest rate or you may face stricter lending criteria. If a loan is declined, it’s possible that this will affect your overall credit rating.

That’s the bad news.

The good news is that there are many types of loans specifically designed for older Australians. Some suit certain households and retirees more than others. Understanding the difference between loans for pensioner and their particular benefits or need for consideration is important for any prospective borrowers.

Home Equity Access Scheme

Formerly known as the Pension Loan Scheme (hence the popularity of the term ‘pensioner loans’), the Home Equity Access Scheme (HEAS) is a type of pensioner loan offered by the Federal Government. It is distributed and managed by Centrelink and provides eligible Australian homeowners of Age Pension age with a fortnightly income stream from their home equity.

Key Benefits
With the Home Equity Access Scheme, you can…

Key Considerations

When deciding if the Home Equity Access Scheme is for you, remember that…

  • Choose to receive lump sum payments or an ongoing income stream.
  • Benefit from a low interest rate (currently 3.95%).
  • Access it even if you’re a self-funded retire.
  • You have to be Age Pension age to access it (currently 67 years).
  • You need to repay the loan, plus interest and legal costs, upon the sale of the property.
  • The amount of the loan increases over time and, in turn, the value of the estate passed to beneficiaries might decrease.


Home Reversion Scheme

Although not technically a type of loan for pensioners, another way to access savings and fund your retirement lifestyle is through a home reversion scheme. Instead of borrowing against the value of your home, you agree to sell a share of its future sale proceeds and, in exchange, you can receive a lump sum payment.

Key Benefits
With the home reversion scheme, you can…

Key Considerations
When deciding if a home reversion scheme is for you, remember that…

  • Avoid repayment obligations while your home is occupied by at least one party to the reversion contract.
  • Repurchase the sold share at any time.
  • Keep your home even if you move into residential aged care.
  • You’re no longer the sole owner of your home.
  • There’s less transparency when it comes to fees and costs, which can be complex and difficult to understand.
  • You forgo any future growth in the value of your home that relates to equity sold under the reversion contract.

Reverse Mortgages

A reverse mortgage is a popular form of equity release designed for homeowners aged 60+. When you take out a reverse mortgage loan, you unlock the wealth built up in your home without having to sell it, meaning you can get the best of both worlds: on one hand, you get access to funds to maintain the lifestyle you deserve and, on the other hand, you can remain in your family home for as long as you wish.

Key Benefits
With the reverse mortgage, you can…

Key Considerations
When deciding if a reverse mortgage is for you, remember that…

  • Continue to enjoy the comfort of your home.
  • Improve your funding and live your retirement more comfortably.
  • Choose to receive lump sum payments or an ongoing income stream.
  • Remain the owner of your home and benefit from its capital growth.
  • Choose if you want to make regular repayments or not.
  • Interest is capitalised, so the loan value will increase over time unless you pay the interest during the course of the loan.
  • The amount of home equity available as a bequest will be reduced.
  • Loan to Value Ratios (LVR) of reverse mortgages are dictated by your age and generally lower compared to standard home loans.
  • Reverse mortgages tend to have a slightly higher interest rate than regular mortgages because loans are generally repaid at the end of the term.
  • Drawing funds from your home now may reduce what you could potentially access later.

Read more about Reverse Mortgage pros and cons and Reverse Mortgage lenders.

Household Capital Household Loan

How it works

Household Capital’s Household Loan is a type of reverse mortgage that enables you to responsibly draw on your Household Capital™ – the savings in your home – and use it to meet your long-term retirements needs. These can include:

  • Regular income. Improve your retirement income (and gain a new peace of mind) by drawing a fortnightly or monthly income.
  • Refinance. Replace your regular home loan with a Household Loan; this way you don’t have to make regular repayments and this can allow you to improve your retirement cash flow.
  • Top ups. Boost your retirement income or set up a contingency plan to cover any unexpected expenses.
  • Giving. Many older Australians are keen to join the Bank of Mum & Dad and support their adult children (or grandkids) by covering mortgage expenses, contributing to a first home deposit or paying education costs.
  • Security of care when you need it. Enjoy greater choice and flexibility when it comes to meeting your in-home or residential care needs.
  • Live. Boost your quality of life by buying a new car, paying for medical expenses or renovating your home, just like Lynne did after struggling to secure a loan from a bank to purchase a new car.

Read more about ways to use your Household Loan here.

The information included in this article is provided for informational purposes only. The information contained in this article reflects, as of the date of publication, the current opinion of Household Capital Pty Ltd and is subject to change without notice. Applications for credit are subject to eligibility and lending criteria. Fees and charges are payable, and terms and conditions apply (available upon request). Household Capital Pty Limited ACN 618 068 214, Australian Credit Licence 545906, is the Servicer for the credit provider Household Capital Services Pty Limited ACN 625 860 764.