The Mortgage Trap

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Summary

A mortgage debt in retirement can have a significant impact on financial and emotional wellbeing. It can lead to unpalatable choices and for many, a less comfortable standard of living. This article examines the options available to retirees still paying a home loan.

An Ageing Population

That Australia’s population is ageing will come as no surprise. We currently have circa 5.8 million over 60s, and a significant 72 percent of them – 4.2 million individuals – are already retired.

And, despite high levels of home ownership and home wealth among this cohort, a substantial portion of them are currently facing financial pressures:

• Approximately 36% of retired Australians have a mortgage. The issue here isn’t just about diminished retirement income, it’s about persistent debt obligations in retirement.
  
• Even more alarming, 54% of the pre-retiree segment (aged 55+) – those approaching retirement – have ‘significant’ existing debt. This highlights a looming challenge for their retirement security.

Based on Household Capital’s five years of experience, those customers who approach us with mortgage debt are managing an average home loan of $200,000. This equates to nearly $1,200 per month to pay from a fixed retirement income.

Mortgage Debt in Retirement: The Challenges

Your retirement ‘pay cheque’ may come from a number of sources: income from investments or term deposits, an account based pension from your super fund or the Age Pension. You may have purchased an annuity or other retirement income stream. Having to meet your obligations with your bank each month can be stressful and not conducive to the relaxing retirement you may have envisaged. The risk of not meeting those obligations is foreclosure, the least palatable of all options.

Some retirees deal with mortgage debt by selling the family home and moving into a more cost effective residence. The issue here is that often that ‘affordable’ home can be a fair distance from family, friends and community. Selling up and moving can often be an expensive exercise, with lots of hidden costs, both financial and emotional. 

Others use their super to discharge their mortgage debt. On the upside, no more regular repayments to make. On the downside, this may severely reduce available retirement income from super. Given that the median super balance at retirement age is $213,986 for men and $201,233 for women, using super to pay out mortgage debt can result in diminished retirement savings. This means less income and reduced access to capital.

Delaying retirement is another strategy, although it’s not a viable option for everyone. While some people are happy to keep working, for others it’s a strain. 

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Case study | Barry

Barry approached Household Capital when his back refused to refinance his home loan. He didn’t have a huge amount owing, but was being charged a legacy rate, higher than the prevailing interest rate of the time. His bank refused to help him, citing his reliance on the Age Pension for income as the reason.

Feeling despondent about having to continue funding his home loan repayments and keep up with the rising cost of living, Barry set out to find another way. His research led him to Household Capital. We were able to refinance Barry’s home loan and provide a regular income stream, drawn from his home wealth. Not only was Barry freed from the bank’s shackles, he’d freed up his retirement cash flow to confidently enjoy an improved retirement lifestyle. 

Watch Barry’s story

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Approximately 40 percent of Household Capital’s customers unlock their home wealth to pay out a home loan. This is an effective way to alleviate the burden of regular repayments and enjoy financial security and choice, without being forced to sell the family home. A Household Loan does not require regular repayments and comes with a range of consumer protections.

After all, we want our customers to enjoy their retirement in the home they love. 

If you have a home loan that’s eating into your retirement income, try our calculator to see if we could help you.

¹ABS, Retirement & Retirement Intentions, May 2024.
²Commonwealth Bank Mortgage Calculator, 30 year loan, standard variable rate of 5.84% – accessed 3 June 2025.
³ASFA, An Update on Super Balances, November 2024.