As seniors get older, it’s becoming more challenging to get approved for a home loan or refinance an existing mortgage. Usually, traditional financial service providers such as banks are reluctant to offer loans to seniors because they are considered high-risk borrowers.
If you’re already retired and on a limited income, your ability to make repayments could be viewed as a higher risk because you could have difficulty to keep up with the payments. If you’re a pensioner, it would be much harder to get a home loan. It’s because the amount you receive from your pension is usually lower than the required income to qualify for a home loan. And if the bank would give you access to funds, they tend to charge you a higher interest rate.
When you apply for a home loan, your age is a considerable factor for banks in the assessment of your application. As most home loans and refinancing are paid off over a term of 25-30 years, banks are at risk of lending to seniors because the borrower might pass away before the loan is repaid.
You have to demonstrate to the bank how you plan to pay off the loan with an exit strategy. These usually include the source of your retirement income or any assets you could sell to repay the loan.
As traditional lenders adhere to responsible lending rules, they would want to know your exit strategy if the loan term extends into your retirement. It should detail how you will repay your loan without acquiring financial hardship.
Consider these exit strategies:
- Superannuation. Use your super or drawdown a lump sum to make repayments.
- Downsizing. Sell your property and move into a lower cost home.
- Sell your assets. These may include other properties, shares, or investments.
Most lenders don’t consider anticipated future windfalls when assessing your ability to repay a loan, so they shouldn’t be part of an exit strategy. These may include an inheritance, a form of settlement, compensation payout or bonuses.
Your exit strategy should demonstrate that you can make repayments without financial hardship. If the bank is not convinced about your ability to repay, your application will likely be declined.
An effective exit strategy should include your:
- Financial position
- Pre and post-retirement income
- Retirement plans
Using the ASAG Reverse Mortgage to refinance a mortgage
If you have an outstanding mortgage for years, there’s a possibility you’re paying a much higher interest rate compared to those loans being offered today. Most refinancing involves applying to another lender. But even with a good repayment history, the lender needs to know if you could handle making repayments for the term of the loan.
If you’re a senior homeowner looking to refinance an outstanding mortgage, our equity release facility may be able to help you. The ASAG Reverse Mortgage allows you to unlock the wealth in your home to access funds without selling or losing ownership. The funds can be used for different acceptable purposes, including Senior Refinancing, while you enjoy your retirement.
There are no ongoing payments with our reverse mortgage as the loan is paid off when you permanently leave your home, either you downsize, move to aged care, or pass away. However, you may choose to make early repayments without penalty.
Our team at ASAG can assist you with more information on how the loan works. Call us on 1300 002 724 or send your enquiries at firstname.lastname@example.org.
To get started, feel free to use our tool below to assess your available equity.