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A growing number of Australian homeowners are approaching retirement with mortgage debt. A recent article cited some startling figures; in the 2019-2020 financial year, 54 percent of homeowners aged 55 to 64 had mortgage debt.1.
As your clients reach 60, it is increasingly difficult to obtain home loan financing from traditional providers. This includes being able to refinance an existing home loan to attain a better rate or more favourable terms.
The banking challenge
Banks appear increasingly reluctant to extend finance to the over 60s. Whether it’s to refinance a home loan, provide a line of credit or a smaller personal loan, there’s typically an age related roadblock as these clients income changes from salary to consuming savings.
Despite the fact that Australians are living longer, healthier lives – and many are retiring later – if a loan term extends past your clients’ likely retirement age, it can be difficult to secure approval. Offering flexible lending solutions to meet the needs of Australia’s ageing population is not on banks’ collective radars.
The retirement challenge
Dragging a mortgage into retirement presents many challenges, not least the need to keep making repayments from a fixed retirement income. This can strain your clients’ finances and limit their ability to enjoy retirement to the fullest – or can keep them in the workforce well past their intended retirement date.
The inability to refinance or negotiate lower interest rates can make it harder for your older clients to adapt to changes in their financial situation: unexpected expenses, the rising cost of living, illness or injury. A failure to meet mortgage repayments could lead to the risk of foreclosure, potentially resulting in the loss of the home.
Those principal and interest repayments can really stress budgets, especially as the interest rate for ‘old loans’ may be much higher than current rates for younger borrowers. The burden of mortgage debt in retirement can lead to anxiety and stress, which can negatively impact your clients’ overall well-being.
An alternative solution
Household Capital has helped thousands of over 60s with its flexible lending solutions. Its Household Loan, structured as a reverse mortgage, puts your clients in control.
The Household Loan is a retirement-ready mortgage that’s flexible for your clients’ future needs and provides choice with respect to the repayments they make, with the option to make voluntary interest-only repayments.
Your clients don’t need long-term income to qualify for a Household Loan, plus it comes with important protections; there’s no risk of foreclosure if a repayment is missed and there’s peace of mind with guaranteed lifetime occupancy.
A Household Loan provides a flexible solution that can adapt as clients' needs change. For example, during later working life your clients may wish to access the optional retirement interest only option and continue to make payments to preserve equity. They can then switch to the ‘capitalise’ phase, to minimise repayments and maximise retirement income.
A new trend in over 60s lending
Household Capital is working with brokers using reverse mortgages to meet the needs of their older clients. Rather than the traditional use of a reverse mortgages as a ‘line of credit’, brokers are instead recommending them to clients to:
- Refinance a home loan, with or without regular interest only payments
- Renovate their home to make it retirement ready
- Give to their kids to help them purchase a property or to help meet mortgage repayments
- Purchase a new property, maybe one that’s ‘trading up’ from their current residence
- Re-establish themselves following a divorce.
If you have clients over 60 that would benefit from flexible lending solutions, get in touch with Household Capital’s broker support team:
Applications for credit are subject to eligibility and lending criteria. Fees and charges are payable, and terms and conditions apply (available upon request). Household Capital Pty Limited ACN 618 068 214, Australian Credit Licence 545906, is the Servicer for the credit provider Household Capital Services Pty Limited ACN 625 860 764.
1.https://www.smh.com.au/money/super-and-retirement/more-than-half-of-retirees-and-older-workers-have-mortgage-debt-20230921
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