How can seniors get a home loan in Australia?

Applying for a home loan over 50? Get an exit strategy

An exit strategy is basically a plan outlining what will happen to your loan when you retire. The lender will need to be completely satisfied that you will be able to continue making repayments even when you are no longer working full-time.

Every lender has different expectations, but common exit strategies include:

• • Downsizing to a smaller, cheaper home and using the savings to help pay off the loan.
  • Selling an investment property or liquidating another asset (selling an ETF for example).
  • Using your superannuation to pay off the loan once you retire.

• Income from part-time work, a pension fund or some other form of income.
• Inheritance from a family member.

How a mortgage broker can help older Australian borrowers

Mortgage brokers specialise in helping borrowers in unique situations who may find it hard to get a loan from their bank. This includes older borrowers looking to get home loans.

A broker has a really good sense of what each lender in their panel is looking for. They can help you create both a strong application and a clear exit strategy.

Get your paperwork together

Whether you use a broker or not, you stand a better chance of getting approved if your lender has a clear picture of your entire financial life.

Make sure you list all your assets, including your super balance and details of any properties or investments you own.

Using your super to buy a home or repay a loan

You can generally access the money you've saved for retirement in your super once you reach your preservation age (60 for anyone born after 30 June 1964) and meet a condition of release, such as retiring or turning 65. You can withdraw a lump sum to buy a house, or access your super over time by setting up an income stream.

• Buying a house. If you withdraw a big chunk of your super and buy a house outright you can skip a home loan altogether. But this reduces the money you have to cover other retirement costs.
• Income stream. Some lenders will accept your super income as a form of income when applying for a home loan.

What if I already own a home?

Older Australians who own property have a different set of finance options should they need funds for travel, retirement, downsizing or other purposes. This is because your property has value, known as equity.

You can borrow against this equity.

• Line of credit loan. Taking out a line of credit allows you to borrow against some of the equity in your property. You get approved for a specific limit, and then you only pay interest on the money you spend. So it's quite flexible. But you will need some kind of income or savings to cover the repayments.
• Reverse mortgage. A reverse mortgage also allows you to borrow against the equity in your property. But there's a bigger catch. You can make repayments, but you can also opt to repay the loan when you sell the property (or when you die). The lender gets a piece of your future equity to recoup the loan. This is a better option for older borrowers who don't have regular income to repay a line of credit.

Buying a place in a retirement village

But if you're in your 60s you may want to purchase a unit in a seniors village to provide a comfortable retirement. However, many lenders are reluctant to accept homes in over-55 villages as security for a loan, as they are concerned that such properties may be difficult to sell.

Frequently asked questions about home loans for over 55s

• Is there a maximum mortgage age limit?

  There is technically no maximum age limit for when an Australian can apply for a home loan. The National Consumer Credit Protection Act 2009 contains no upper age limits of any kind (you need to be over 18 and that's it).

  So you could, theoretically, take out a mortgage regardless of whether you're 18 or 80. But lenders have a responsibility to ensure that they only approve home loans to applicants who can afford the repayments.

  If you're 60 years old and you apply for a mortgage with a 30-year loan term, you'd be 90 by the time you repaid it. That's a risky proposition for a lender.

• What do I need to do to take out a mortgage if I'm over 55?

  If you're over 55 and applying for a home loan, you'll need to provide a greater amount of information regarding your current and future financial position than younger borrowers. This simply reflects the fact that the older you are and the nearer you are to retiring, the less likely you are to be able to fully repay the money you borrow.

  To minimise the level of risk, and to also satisfy responsible lending obligations, a lender will ask you to supply detailed information about your employment and the income you earn from all sources. The usual information about any other outstanding debts and your ongoing expenses is required as well.

  You'll also need to have an exit strategy, which is basically a plan outlining what will happen to your loan when you retire. The lender will need to be completely satisfied that you will be able to continue making repayments even when you are no longer working full-time. A lender may not accept selling the property as your only exit strategy, so you may also need to show how you'd use your superannuation payout or the sale of an investment property to repay the loan.

  Some lenders might also shorten the maximum loan term for older borrowers to ensure that you will repay the loan before you reach the lender's maximum age, which varies between lenders.

• What are the best mortgages for over 55s?

  There is no single home loan product that can be classified as the "best" mortgage for over 55s, as your financial position, repayment capacity and loan purpose can all affect your choice of mortgage. However, there are a few key features to look out for that can help you find the seniors home loan that's right for you:

  • Low interest rate. Just like any other type of home loan, the interest rate that applies to an over-55s mortgage has a big impact on how much you will have to pay over the life of the loan.
  • Minimal fees. Hidden fees and charges can also have an impact on the total cost of your loan. Keep an eye out for application and establishment fees, settlement fees, ongoing fees, redraw fees and discharge fees.
  • Additional repayment flexibility. A loan that allows you to make unlimited additional repayments means that you can pay down your debt quicker and minimise the interest you pay, which is especially important if retirement is just around the corner.
  • Offset account. Home loans with offset accounts also allow you to reduce the interest payments on your loan, helping you pay it off sooner.

• Can I get a home loan if I'm retired or on a pension?

  Yes, retirees and pensioners can qualify for home loans, but they may need to meet specific income and asset requirements.

• What are the risks of mortgages for seniors?

  There's always a certain level of risk attached to taking on debt, but the closer you are to retiring and no longer earning a regular income, the greater the amount of risk. Getting into financial strife when you're past the age of 55 can cause all manner of problems at a time when many of us would rather be winding down and looking to relax. If you get in over your head, you could end up having to extend your working life just to get your debt under control. Make sure you have a reliable exit strategy in place to protect against unexpected complications.

  It's also important to be very wary if you're buying a home in a seniors village or retirement village. In some cases, when you purchase in these villages you buy a building but not the land it sits on, so the developer owns the appreciating asset (the land) while you own a home that depreciates. And if the developer decides that they want to use the land for something else, you could be forced to move out. Units in these developments can sometimes also be drastically overpriced, so it's essential to seek independent financial advice before committing any funds.

Written by

Richard Whitten

Senior Money Editor

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Richard Whitten is Finder’s Senior Money Editor, with over eight years of experience in home loans, property, credit cards and personal finance. His insights appear in top media outlets like Yahoo Finance, Money Magazine, and the Herald Sun, and he frequently offers expert commentary on television and radio, helping Australians navigate mortgages and property ownership. Richard started his career in education and textbook publishing in South Korea. He holds multiple industry certifications, including a Certificate IV in Mortgage Broking (RG 206) and Tier 1 and Tier 2 certifications (RG 146), as well as a Bachelor of Education from the University of Sydney and a Graduate Certificate in Communications from Deakin University. See full bio

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