Home loans for seniors

When it comes to borrowing home loans, age is not always a barrier.

There are plenty of options to get home loans for those over 60s in Australia. However, lenders may classify such borrowers as high-risk even when extending home loans for those over 55 and impose additional conditions for approving housing loans for seniors.

Here’s everything you need to know about senior home loans in Australia.

Loans for borrowers above 60 years to help them purchase a home are known as home loans for seniors. In some cases, borrowers above the age of 50 or 55 can also be considered senior borrowers.

Since there is no rule about at what age you should purchase property, various lenders provide home loan assistance to such borrowers. The loan options vary depending on whether you are on pension benefits or own a house.

Here are the different types of home loans for seniors in Australia

Line of credit home loans

Opting for a line of credit is a popular choice when it comes to home loan for pensioners.

This type of funding relies on the equity in your home and determines your credit limit. You can withdraw funds as needed as long as you are within the approved limit. You also can withdraw the entire amount at once or do it over time. Interest is payable on the money you withdraw. However, these loans carry a much steeper rate of interest when compared to regular loans for pensioners.

Fixed-rate pensioner home loans

As the name suggests, such loans for pensioners in Australia allow them to lock in the interest rate for a specified period which can vary from one to five years. During this time, there is no fluctuation in the interest charged even though the rates of lending regulated by the central bank may change. Pensioners prefer this option as there is a certainty about how much instalment needs to be paid every month.

Pension Loans Scheme

Senior citizens who don't want to approach private home loan lenders can explore the option of signing up for the Pension Loans Scheme.

Such home loans for pensioners in Australia provide senior citizens with a non-taxable loan from the government. The amount is linked to the maximum amount of pension the borrower is eligible for. Here are the conditions one must fulfil to receive this senior home loan:

• You should be eligible to receive Age Pension from the Australian government
• You should own a house in Australia that can be offered as security
• You should be solvent
• You should have adequate and appropriate insurance for the security offered

Bear in mind that the age of the borrower and equity ownership in the house also impact the loan amount. Typically, the loan amount can be up to 1.5 times the maximum pension the borrower is eligible to receive.

Reverse mortgages

Reverse mortgages are a type of home equity loan for seniors where the lender extends you a loan on the basis of the equity value of your home. Your equity acts as security, and the amount you can borrow also varies depending on your age. For example, you may be able to borrow around 15% to 20% of the home value when you are 60 years old and 20% when you are 65 years old.

Unlike traditional loans, there are no scheduled instalment payments. The interest gets added to the loan amount, and the loan needs to be repaid in full only under the following circumstances:

• If you sell the house
• If you move to assisted living for seniors
• If you pass away

‘Can I get a home loan on a pension?’ is a question that plagues every pensioner.

The bottom line is simple -- home loans for pensioners may be an uphill battle if you only consider traditional lending institutions. Most banks and financial institutions consider such borrowers to be extremely high-risk due to a lack of stable cash flows. Moreover, since most home loans tend to have a repayment period of 25 or 30 years, lenders may be unwilling to extend assistance to pensioners as there is a high chance of them passing away before the repayment period is over.

There are different loans for people on pension marketed by non-traditional lenders. However, it can be extremely difficult to qualify for such financial assistance since your sole source of income is your pension which may not be sufficient cash flow to square off the risk of lending. You may be charged a very high-interest rate to minimise the increased lending risk. To improve your chances of getting approved, consider asking for a smaller amount or borrowing for a shorter duration.

Also, remember that there are no government home loans for pensioners, as the government doesn’t extend additional assistance to those on a pension to get a home loan. However, you can avail of various stamp duty concessions offered by state governments or opt for the first home owner grant from the federal government as a one-time payment, provided you fulfil the eligibility criteria. This scheme is targeted toward those purchasing their first-ever home.

Legally, there is no maximum age limit for an Australian to apply for a home loan. In fact, the Age Discrimination Act 2004 and the National Consumer Credit Protection Act 2009 protect the interests of senior citizens by preventing discrimination. So even if you are on pension benefits, you are eligible to borrow home loans for seniors.

The only responsibility that lenders have while approving a home loan on a pension is to check whether you can afford the repayments. Unless you are able to demonstrate that you have cash flows to service the debt or equity in the house that can be pledged as security, you may find it difficult to get approved for a home loan. Here are some tips to keep in mind to maximise your chances:

Gather all the relevant documents

Similar to conventional loans, home loans for retirees also involve a great deal of paperwork. You need to supply detailed information regarding your cash flow status as well as outstanding debts. Arranging the documents before starting the application process can help avoid last minute rush. Most lenders will allow you to apply online or in person and you can expect to hear from them in a few days.

If you have a poor credit history, consider approaching lenders who extend home loans for pensioners with bad credit. However, such lenders may ask for additional paperwork, and being prepared in advance can help you to stay on top of the application process.

Have an exit strategy

Be clear about your exit strategy if you find yourself unable to service the loan. For example, while a reverse mortgage for pensioners is a good idea, think through the consequences of you moving to a care facility or passing away. As per the terms of the contract, the lender will take over your property, but if you have dependents living in the house, it may not be an ideal situation. Consider alternative options for home loans before giving up on your home equity.

Get in touch with a mortgage broker

There are specialised brokers who help to secure home loans for seniors in Australia. They are well-versed in the technicalities involved and are also familiar with the new mortgage rules for older borrowers. If you don’t have someone to help you with the groundwork, availing the services of such a mortgage broker can be useful.

While the exact suite of documents needed for home loans for seniors varies depending on the lender, here’s an indicative list of what you can expect:

• Proof of your age such as your current Drivers License or Passport
• Tax file number
• Proof of Australian residence status except if you are a natural-born citizen
• Details of your income and assets
• Latest tax returns for investment properties, if any
• Recent bank statements
• Documents that demonstrate your ownership of the house
• Proof of previous mortgages/loans for the house being paid off

Unfortunately, no mortgage options are specifically marketed to those on a disability pension. If you are receiving a disability pension, but you have not reached retirement age, your pension is considered your only source of income. Getting approved for housing loans for seniors on a disability pension can be harder as the amount may not be sufficient to qualify for a minimum home loan.

How much you will be eligible to borrow depends on the pension you receive and your expenses. A popular home loan for seniors receiving disability pensions is to opt for a low-deposit home loan. Such loans allow you to borrow up to 95 percent of the home equity. The lending criteria are strict, and you need a good credit score to qualify. Alternatively, you need to furnish a Lender's Mortgage Insurance to protect the lender from higher risk on account of a low deposit.

While there are lenders who specialise in providing home loan for bad credit, you may still find that the interest rates are higher than conventional loans. Since the minimum credit score for home loan depends on the lender you are approaching and the credit rating score they are relying on, it is advisable to check your score prior to applying, so you know where you stand currently. With XX, you can check your credit score any time you want to.

As a rule of law, when the primary debtor passes away, unpaid debts are paid off through money or the property they leave behind. If there are sufficient funds left, the executor of your will can pay off the creditors. If there are not enough funds left, the executor may need to sell your assets and use the proceeds to settle the debts.

In the event of secured debts such as a reverse mortgage, the lender can take over the secured asset when you stop making the repayments and sell it to recover the dues. If the reverse mortgage is on a joint account, then the surviving borrower is responsible to pay off the debt.

If the usual options for home loans for the elderly don’t work out for you, here are some alternatives to consider:

Centrelink Cash Advance

If you are eligible to get Age Pension, you can request a part of it to be paid early. You can adjust the amount against your future pension payments. This can provide you with immediate cash flow and can also work as a home loan for seniors.

Secured personal loan

You can use your existing assets, such as a car or jewelry, to secure your borrowing. While the interest rate of such borrowings may be lower than traditional loans, you run a risk of losing ownership of the asset should you fail to make the repayments.

Community focused programs

There are several community financial assistance programs that provide personal loans to borrowers who are in the low-income bracket, such as pension payments. The end use of such loans is highly restricted and can only be used to pay for household goods and essential items.

Debt consolidation loan

If you have accumulated too much debt as a senior citizen and you are unable to service them, you can opt for consolidating the debt by opting for home equity loans for seniors, provided you own a house in Australia. With debt consolidation loans, you can borrow against the equity and streamline your payment obligations without moving out of the house.

You can also avail of free government debt consolidation programs in Australia through the National Debt Helpline if you cannot secure a debt consolidation loan through private lenders.

Home loans for those over 60s are not a pipe dream. There are various options available in the market you can look into. Having said that, remember that it is impossible to identify the best banks for home loans, as your ability to repay the loan and your current financial position have a massive bearing on who approves you. Make sure to do your research before you sign on the dotted line.

More importantly, check credit score before applying for any kind of loans to get a better assessment of your eligibility.