Can I refinance my mortgage if I’m retired

Just because you’re retired doesn’t mean that life – or your need for finance – stops.

The financial situations of most older Australians tend to evolve and fluctuate over time, and many retirees encounter situations where they need to extend or otherwise refinance their mortgages. For some the cause will be an exciting investment opportunity that they simply can’t pass up; for others it will be financial hardship, such as a fall in expected income and a difficulty making payments.

Given they no longer have full-time incomes and are a less attractive prospect to lenders, it can be harder for retired people to take out loans and refinance their mortgages. But there are options out there if you are prepared to do your homework and shop around.

How to refinance a mortgage before and after turning 55

It’s a sad fact of life. The older you are and the fewer working years you have before you, the less kindly many lenders will view you. People over the age of 55 will often find it harder to secure a mortgage or refinance than someone who is 30 or 40, even if both have steady jobs.

If you are in your late 40s, it may be worth giving some thought to refinancing now if you believe you could obtain a better rate or a loan product that better suits your needs. In a few years, lenders will limit how much they will loan you and will shorten the length of the loan compared with people younger than you.

If you’re over 55, don’t despair. Flexible lenders will accept mature-age borrowers, so it’s a matter of finding them and negotiating. Some lenders are happy to give you a loan as long as you can show you’re able to repay the loan before you turn 75.

Lenders may want you to have a defined exit strategy. This can include your plans to sell your investment property or shares, access your superannuation as a lump sum or regular income or downsize from your large home when you retire.  As well, they may expect that you will repay your loan before you retire. Each lender will have different policies, so do your research to find one that fits your needs.

How can you repay your mortgage if you’re retired?

Almost all retirees have some form of income, whether it be from the pension, from superannuation, annuities, shares, rent, investments, or perhaps a sideline business. You might be doing part-time consulting, decluttering, selling online or tutoring.

Many retirees draw a tidy regular income as gig workers drawing on a range of skills through online platforms such as Airtasker, Fiverr, Upwork or Freelancer. Renting out spare rooms in your house or a granny flat could boost your cash flow.

All these income sources can help pay off a mortgage. Some retirees opt just to pay the interest each month and then pay off their loan in full when they sell their home.

Should I refinance my mortgage before I retire?

If your current mortgage is not meeting your needs, refinancing before retirement could be a good move. For example, you could renegotiate with your lender to make higher repayments more frequently. That could set you up to be debt-free before you retire. If you’re locked into a high fixed interest rate with a lender, you could look around for a better rate.

Find out what you will need to pay to discharge the mortgage with your current lender. When you refinance, costs include mortgage discharge, setup fees for the new property, title insurance and possibly lender’s insurance mortgage. The latter comes in when you have less than 20 per cent equity on your current loan, or you are refinancing a larger loan.

Refinancing your mortgage is a good way to consolidate your overall debt, such as from credit cards or car loans. Don’t assume you can consolidate property loans as your lender might be keen to keep them separate. The upfront costs of refinancing can be hefty, but do your sums, and you might find the new lower interest rate shows you’ll have a slimmer overall cost over the term of the loan.

Can I refinance my mortgage after I retire?

Your current or would-be lender may allow you to refinance your mortgage post-retirement. You can pay down your mortgage with part of your superannuation. That might leave you with a smaller home loan, but locked into a fixed interest rate. Shop around for a lower rate, but check with your current lender what they would charge for discharging your loan. Some retirees refinance, only paying the interest each month and then paying off the principal in full when they sell or leave their home. Sorting this out with your lender early on means you may have guaranteed occupancy of your home until you no longer need it, so you are not a risk of foreclosure.

What is a reverse mortgage and cash-out financing?

A reverse mortgage allows you to access the equity in your home as a lump sum or regular income. There are conditions, though. You will need to hold enough equity in the property for your lender to release part of the funds. Most lenders require you to be at least 60 to qualify for a reverse mortgage. At that age, generally, you draw down to 20 per cent of the equity in your house, and you retain ownership. You can apply for a reverse mortgage even if you have paid off your loan. A professional advisor could guide you if you don’t have enough equity. Leasing spare rooms for extra money or selling the house are some options.

Cash-out financing is when you have a new home loan that draws against your home’s equity to borrow more than you owe. So, the money goes directly to you, rather than using the extra borrowings to pay for something else. Your lender will probably ask you why you need the money and for proof before they hand you the cash. The funds might be handy to put a deposit on an investment property, invest in shares, renovate your home, or clear your debt on other assets.

The finance of Selling and downsizing after retirement

You might be holding onto a larger property than you need, planning to access favourable capital gains. However, in an uncertain economic environment, your house value may not increase in line with your expectations. That’s why downsizing now to access equity, such as for your living expenses and to buy another property, might be a good fit for you.