Finance

Can I refinance my mortgage if I’m retired?

By Erin Delahunty  |  22 Apr, 2021

Retiring without mortgage debt was once almost a given for Australians, and while economic data shows Australia’s current crop of retirees are at least as well off if not better than previous generations, retiring with a mortgage is increasingly common.  

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Public policy thinktank the Grattan Institute predicts that by 2056, if current retirement conditions prevail, the percentage of retirees who own their homes outright will have fallen to 66% from 80% in 2019.

With a growing number of people still having to pay off a mortgage in retirement, the question as to whether it’s possible to refinance that is replacing an old loan with a new, better loan to save money naturally arises.

While older Australians could be perceived as risky by some lenders, the answer is yes, it’s possible to refinance a mortgage if you’re retired.

As is the case at any stage of life, refinancing in retirement involves taking out a new loan to repay an existing loan, either with the same lender or an entirely different one.

The main reason is to save money by switching to a loan with a lower interest rate, but it could also help consolidate debt. Borrowers could save money by rolling higher rate debts from something like a credit card into a mortgage with a lower-rate. There are different fees associated with refinancing.

The first step for older Australians should be to speak with their current lender and ask for a more competitive deal, but for those looking to refinance, here’s a breakdown of what to consider.

1. Refinancing after the age of 55

Refinancing your mortgage is technically possible at any time during the life of the loan, but it’s true that lenders consider people close to retirement a greater risk.

While how potential lenders approach this demographic varies widely, most will more than likely assess your financial situation very closely.

Before moving on, it could be a helpful to sit down and work out your financial goals first, then possibly with the help of a mortgage broker or financial advisor, come up with a plan to work towards them.

Refinancing your mortgage in this case could be one step in helping you better approach your debts and savings as you enter retirement.

2. How could you repay your mortgage when you’re retired?

Retirement for most people brings with it a significant drop in income. In cases where people still have to pay mortgages after they retire, income from such sources as superannuation, shares, investment properties or the pension could still be used to pay down debt.

Individual situations vary widely of course, which is why it’s important to carefully assess your finances before making any choices with regard to refinancing.

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3. Should you refinance your mortgage before retirement?

If you do decide to refinance, starting before you retire could offer a number of advantages.

While you still have an income, potential lenders should look at you as a lesser risk than if you wait until after you retired.

One of the main reasons to refinance before you retire is to reduce your repayments so you’re able to afford them once you do leave work.

You could approach your current lender to ask for a more competitive interest rate or shop around for a lower rate or better conditions from another lender, so you could reduce your repayments or add the flexibility you need in the loan.

Remember though, there are costs involved with swapping lenders and these could vary between vendors.

You may also be able to increase the term of your loan, so your monthly payments are reduced to a level you could afford in retirement. Keep in mind just how long you will be paying the mortgage off for in this case though.

4. Can you refinance your mortgage after you retire?

If you’re already retired, refinancing is an option, but lenders could look at you as a greater risk. It could be a suitable idea to carefully assess your financial situation first, then get some advice from a mortgage broker or financial planner to discuss your best options.

If you’re still receiving a consistent income through shares or an investment property, you could have more options available to you.

If you’re finding you’re having trouble meeting your current repayments, refinancing could be a suitable option by shifting to a mortgage with a lower interest rate.

Or if you have high repayments on other types of debt, credit cards, for example, you could save money by consolidating your debt into a mortgage, which generally has lower interest rates.

5. What is downsizing and how could it help retirees?

One way you could reduce or eliminate your debt is to move into a smaller or less expensive property.

If refinancing in your current home is not the best option, moving to a property with a smaller mortgage and less upkeep could be an alternative.

As with any decision, there are a number of factors to consider. Will the move mean you’re better off financially? There are costs involved in selling your property and you also should ensure your new property could involve lower costs after you move in.

A new property may also better suit your lifestyle once you retire, as many people have found moving to regional areas from the cities after they finish work. Regional properties could also mean lower associated costs when compared with city properties.

6. How to pay off your mortgage before retirement

If you’ve decided to look at refinancing or lowering your costs as you approach retirement, here are some of the steps you could take to get you on the road.

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1. Negotiate with your lender for a lower interest rate

You could avoid all the costs and work involved with refinancing by simply asking your mortgage provider for a lower rate.

Processes vary widely across financial institutions, but many should be open to discussing this with you, as they would generally prefer to keep your business.

You could present a strong case if you have consistently made your mortgage payments for an extended period. Having a good credit rating and savings record could also strengthen your argument.

2. Refinance your home loan depending on your situation

One of the strongest reasons for refinancing is to shift to a more competitive rate to lower your costs. This is where it’s important to ensure you have calculated all the costs involved in shifting loans.

Some lenders could waive some transition fees if you stay with them for your updated loan, other lenders may waive fees if you’re moving to them, but it’s important you know all the costs involved once you have found a product you think you like, then calculate if the benefits outweigh the cost of moving. It has to be worth your while!

Another reason you might switch loans is for more flexible or suitable conditions. Again, ensure you have carefully considered the costs and benefits and be prepared to accept that refinancing may not be the best option.

It could be a helpful idea to discuss your needs with a financial planner or mortgage broker to help with your decisions.

3. Speak to a broker on how you could restructure your home loan

There are a multitude of loan products, involving different interest rates and conditions, so it could be a help to discuss your individual situation with a mortgage broker to find out if there are any that help you towards your financial goals.

Brokers may also be able to advise how to best argue your case for a lower rate with your current provider or find a new product that could save you in the long term, taking into account the costs of transitioning.

4. Speak to a financial advisor

A financial planner or advisor could be a good start in helping you determine whether refinancing is the best way forward for your situation.

Taking your personal circumstances into account, an advisor may also be able to help you make the best use of your superannuation and help with structuring your tax affairs as you enter retirement.

5. Create a financial plan to achieve your goals

Before moving on with any financial decisions, it could be a good idea to clarify your financial goals first. Consider whether you want to maximise your savings or restructure your debt to a more comfortable level.

Once you know what direction you want to go, creating a financial plan could give you a solid base from which to get to your goals. A good process is to not only consider where you want to end up, but also what milestones you should achieve along the way.

If you’re refinancing at 55, what should your financial situation look like in a year or when you’re 60 or 65? This is where a financial planner and mortgage broker could help, but even if you’re not quite ready to talk with them, considering these factors and planning for your financial future should still be a very useful exercise.

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Words by Erin Delahunty

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