More Australians are retiring with a mortgage

There are a number of reasons Australians might be retiring with a mortgage debt; medical costs from unexpected illness or injury, divorce, kids drawing on the ‘bank of mum and dad’ or unanticipated breaks from paid employment. Whatever the reason, it’s leaving a number of Australian retirees financially stressed and short of retirement funding.

The Stats - Retiring with a mortgage

According to a segment on the ABC’s 7.30 Report last night, one million Australian households have someone aged 65 plus with mortgage debt. Of those, eight percent – or 80,000 people – have mortgage debt that’s three to four times their annual income. As a rule of thumb, you’d expect that level of debt to take around twenty years to clear.

Rachel Ong ViforJ, Professor of Economics at the School of Economics, Finance, and Property at Curtin University, has a warning for the government; the number of older Australians with mortgage debt is increasing.

In fact, among those aged 55 to 64, mortgage debt has increased from 14 percent to 47 percent between 1990 and 2015. Over a twenty-five year period, the number of Australians carrying mortgage debt into their retirement has increased 33 percent.

Pressure on retirement funding

Professor Ong ViforJ cautioned that as an increasing number of Australians retire with mortgage debt, there was the temptation to draw down their super to pay it out – or at least reduce the debt.

The downside is the retiree depletes their super and reduces their ability to adequately fund their retirement. They then become more reliant on the Age Pension, which has implications for the federal budget and the broader social security safety net.

Case Study

Stella (not her real name) is 73 and has a reasonably comfortable cottage on Melbourne’s Mornington Peninsula. There are a few things she’d like to do to it – her timber deck can be dangerously slippery in the rain and her bathroom is ready for a makeover. Her back fence is propped up and she’s hoping her neighbours don’t want to replace it. She doesn’t have the capital to pay her fifty percent share.

Although she’s of retirement age, Stella is still working. She has to – she still has a mortgage to service. Having bought her cottage following a divorce fifteen years earlier, she hasn’t had the time or income to discharge the mortgage. Compulsory super didn’t come in until more than halfway through her working life; Stella knows she can’t use what little super she has to service the mortgage, so she continues working. She doesn’t want to risk defaulting and losing her home.

As the statistics show, mortgage stress among retirees – or the ‘should be’ retirees – is not an isolated issue.

The solution

Are you a retiree finding it challenging to meet mortgage payments? There is a solution – using the accumulated savings in your home. Using a Household Loan, you can access your home equity to discharge your mortgage. Live Well At Home