Refinancing for retirees

Retirement brings a host of lifestyle changes, including adjustments to your financial situation. 

If you have a mortgage, you might wonder whether refinancing is an option after you've retired. There are several things you may wish to consider before making the decision to refinance. 

Refinancing can be beneficial for several reasons: 

• If interest rates have dropped since you took out your loan, it can reduce your monthly repayments, easing the pressure on your retirement income. 

• Retirees might want to switch from a variable-rate loan to a fixed-rate loan for more predictable repayments. 

• Refinancing can allow you to access equity in your home, providing extra funds for renovations, medical expenses, or even helping family members. 

• If you have several debts, refinancing could help consolidate them into one manageable repayment. 

While refinancing is possible, retirees may encounter some challenges: 

• Lenders assess your ability to repay the loan based on your current income. For retirees, this typically includes pensions, superannuation, and investment returns. Since retirement income may be lower than during your working years, proving that you can afford repayments might be more difficult. 

• While there is no official age limit for refinancing in Australia, lenders are cautious about approving loans that extend beyond a borrower’s expected lifespan. This means that older retirees might be offered shorter loan terms or may need to provide additional security. 

• Each lender has its criteria, and some may be more conservative when dealing with retirees. It’s essential to compare different lenders to find one that accommodates your situation. 

• Lenders will look at your overall financial position, including your assets, liabilities, and the purpose of refinancing. If you are refinancing to access equity, lenders will want to know how you intend to use those funds. 

If you’re retired and thinking about refinancing, here are some tips to improve your chances of approval: 

• Lenders want to see that you have a stable income stream. Be prepared to provide documentation of your pension, superannuation income, and any other regular income. 

• Asking for a shorter loan term might be more appealing to lenders, as it reduces their risk. It also means you’ll pay off the loan quicker, which can be beneficial in retirement. 

• A strong credit history is crucial. You may want to check all your existing debts are managed well and avoid taking on unnecessary new debt. 

• You may wish to consult a mortgage broker or registered financial adviser who understands the needs of retirees. They can help you navigate the complexities and find the most suitable refinancing options. 

• Another alternative you may wish to consider is a reverse mortgage. This allows you to access your home equity without making repayments until you sell the home or pass away. However, it’s important to understand the long-term implications, such as how it will affect your estate. You can apply for a reverse mortgage through selected financial institutions or alternatively you can apply via the Home Equity Access Scheme with Services Australia.

The application process for refinancing during retirement is like that for any other borrower. Normally, you’ll need to apply with your chosen lender, provide documents to prove your income, and undergo a credit check. However, this process may vary based on your financial institution’s requirements.  

The lender will assess your financial situation, and if approved, you’ll move forward with the new loan terms. 

Before that, it’s vital that you make an informed decision that aligns with your financial goals and retirement lifestyle.  

Weigh the pros and cons and ensure that refinancing supports your long-term financial well-being.