Refinance Home Loan in Retirement

Is an existing mortgage causing you sleepless nights? Taking the fun out of retirement?

If you’re retired and still paying a mortgage, there’s a fair chance it’s taking a sizable chunk from your retirement income each month. You’re certainly not alone – an increasing number of Australians are carrying mortgage debt into retirement.

There is a solution.

You can stay in your home, refinance your mortgage and free up your retirement funding to enjoy a more comfortable retirement lifestyle. You can use your household capital, the wealth built up in your home, to rid yourself of the bank, the mortgage and monthly repayments.

The mortgage landscape for retirees

A recent survey of retirees[1] found that 87 percent believed Australia’s big banks have abandoned the needs of retirees.

Credit extended by banks to retirees has all but dried up, so refinancing a mortgage to take advantage of lower rates is increasingly difficult – or in most cases, impossible. At the same time, many retirees have experienced interest only loans being converted to principal and interest, often with little warning.

Mortgage stress is real and impacting a growing number of retirement-age Australians.

Regular repayments to keep up with an existing mortgage or other debt can eat into your retirement funding…or worse, keep you in the workforce, unable to retire.

[1] Your Life Choices, December 2019

Refinance or downsize?

Home ownership and the family home is a strong part of our identity, one that does not change when you retire. Home is where you’ve raised your family, created memories, established yourself in a community.

Until recently, most retirees faced with unserviceable mortgage debt felt they had no option but to sell their home. This isn’t an ideal option for everyone – appropriate housing isn’t always available in the right area and most people want to stay in their community.

Downsizing into a smaller home or unit, or even a retirement village, can result in disruption and dislocation, and doesn’t always deliver financial advantage.

It is possible to refinance a mortgage in retirement without downsizing.

How can I refinance a mortgage?

Banks are rarely willing to help retirees refinance a mortgage and we’re often asked whether we can help a pensioner refinance a home loan. The answer is yes, although as with all loans, terms and conditions apply.

Our Household Loan can be used to refinance an existing bank mortgage and has three key benefits for retirees over a traditional bank mortgage:

• Improved retirement funding – as you don’t have to make repayments, the money you were using to service your loan can instead be used to fund your retirement
• Interest payment flexibility – you can choose to make regular interest repayments, however, there is no obligation to do so
• Guaranteed occupancy – whether you choose to make repayments or not, you have guaranteed occupancy of your home until you choose to leave it. There is no default risk.
  

What to consider when refinancing a mortgage

If you’re going to refinance your mortgage, whether with a traditional bank mortgage or with a Household Loan, you need to consider the following:

• Do you want to increase the retirement funding available to you?
• Do you want to be able to pay off the loan at any time without penalty?
• Do you want to be able to make interest only repayments?
• Do you want flexibility?
• Do you want guaranteed occupancy, with no risk of default?

If you answered yes to these questions,

Audrey's Story

Audrey lives on the Central Coast of NSW, a spritely 80 year old who is an active participant in her local community. She lost her husband 20 years ago and although she is surrounded by her children and grandchildren, she’s fiercely independent. She lives comfortably on the Age Pension and plans to stay in her home “for the rest of her days”.

One of our retirement specialists met with Audrey to hear her story. She had an interest only loan with a major bank; she hadn’t missed a payment in fourteen years. Two months prior to their meeting, Audrey had received notice the bank was moving her to a principal and interest loan and wanted to expedite the payment of the principal, something that would have a devastating impact on her income. Audrey was beside herself; the only solution she could see was to sell the home she loves so much.

Household Capital was able to refinance Audrey’s mortgage – and at a significantly lower interest rate. She continues to pay the interest because, in her words, “I can.”

She can also stop paying the interest at any time without penalty, without any risk of default.

Audrey also established a modest contingency fund for household repairs or other ‘lumpy’ expenses her pension income won’t cover.

She was delighted to be able to stay in the home she loves so much, to remain close to friends and family, and importantly, part of her community.