How to obtain a home loan after you retire
Did you know that if you’re retired or you are of older age, it may be hard to get a home loan or investment loan? Regardless of whether or not you have superannuation, an allocated pension or are receiving an annuity income from an insurance company, the banks may be reluctant to lend!
However, where your income can support your loan repayments, there’s a bank that can help you. The trick is to find the right lender that will accept your situation and provide you with the right loan package to suit your needs.
Do I qualify for a home loan?
Two of our lenders can help. On the condition that:
- The income is permanent and ongoing, or
- The income will continue until the end of the loan term, or
- You can prove that you could pay off the loan from sale / realisation of assets (e.g. Investment Property, Shares, and Lump Sum from Super).
We know which lenders can accept self funded retirees. To speak with one of our expert mortgage brokers please enquire online or call us on 1300 889 743 for further assistance.
What documents do I need to provide?
- A statement of your super / annuity holdings dated within the last 6 months, and
- Confirmation of the current balance of your super / annuity dated within the last 30 days, and
- Bank account statements dated within the last 30 days showing the payments received.
Why are the banks so conservative?
The bank takes into account a variety of considerations when deciding to lend to people in retirement. Among those are the risks associated with lending to individuals who no longer work and who pay have difficulty supporting their loan. Although you may be receiving an Allocated Pension, there is large fluctuation in share markets, which may cause it to run out earlier than expected. Annuity income is quite stable but banks still consider it to be a high risk income type and assess it in the same method that they use to assess pensions paid from a super fund.
There are many variables involved with this type of income. As the income is determined by the economy and market conditions, if there was an economic crisis it would be much harder for someone who is retired, due to their age to rejoin the workforce and provide a stable income source.
Will my age matter?
With most banks your age will matter! However, where you can show evidence of income stability and a capacity to afford the loan repayments, age will be irrelevant. Most banks will require you to provide sufficient documentation of your income, including bank statements.
The reason why banks have different views about the age of borrowers is due to legislative requirements. The NCCP Act requires that banks don’t lend to someone who may not be able to repay their loan post retirement, however the Anti-Discrimination Act prohibits banks from discriminating against someone because of their age! As you can see, the conflicting legislation makes it difficult for lenders to devise effective policies for self funded retirees.
How does an allocated pension work?
With an allocated pension the investor directly deposits their superannuation into an account and this is substituted for an income that’s regular or flexible. There are a number of different options for investing! With the advantage of lower taxable income you have the potential to increase your investments value.
What are the benefits of an allocated pension?
There’s a large amount of flexibility allowing you to set up your pension to suit your needs! You can adjust the amount of income you receive and how and regularly you receive these funds. Some people use a financial planner to manage their superannuation, whilst others prefer to set up a Self-Managed Super Fund (SMSF).
This type of pension can be very beneficial! It allows you the freedom to adjust your income according to ongoing changes in the economy. This allows you to meet your required needs and make important decisions on how best to invest your money.
You are also able to make lump sum withdrawals as well, along with your regular income payments. Depending on your circumstances, part of your regular income may be PAYG (PAYE) tax free.
However, it’s important to note that some of these regular payments and withdrawals are bound by the prescribed government limits.
How does an annuity work?
An annuity is an investment that you purchase and then receive a regular ongoing income from. You will be notified by your annuity issuer how much money you will receive each month, as well as in the agreement clause how much change will occur in the payments depending on inflation.
There are variations with annuity though, where it’s possible to receive a fixed rate over a period of time from the amount you invested or to have a variable rate which is subject to market movements.
Other forms of annuity income are derived from Life Insurance providers who offer annual income to customers in accordance with a life insurance policy that is effective once the policy is entered into. This means that persons will receive this annual income payments during their lifetime and not upon their death.
What are the benefits of an annuity?
Similar to an Allocated Pension, there is flexibility with payment. You can decide the time frame in which you receive your payments whether it be monthly, quarterly or yearly; as well as what payment method suits you.
You are also able to increase your income by up to 8%. This is to help keep up with rising living costs or expenses. Further, the investment period ends, you can choose whether you want to withdraw none or all of the investment as a lump sum.
Apply for a home loan or investment loan
Our expert mortgage brokers will aim to find the right solution for you, no matter your income source! We deal with over 30 banks Australia-wide and can assist you in locating lenders that have lenient lending policies. Let us help you apply with a reputable lender that offers a competitive interest rate!
Please enquire online or call us on 1300 889 743 to speak to a mortgage broker who specialises in finding home loans for people who are retired and are on an allocated pension or annuity income.