Home loans for pensioners: can a pensioner get a home loan?

Can you get a home loan on a pension?

This will ultimately depend on your financial situation, as lenders need to know you have the ability to repay the loan. Lenders in Australia are bound by regulations to make sure they only engage in responsible lending, which means they have to ensure they don’t offer you a financial product that’s unsuitable for you.

It’s up to each individual bank or lender to determine how it assesses your financial situation, and pensioners may need to jump through a few more hoops than typical borrowers, due to the nature of their income streams.

As a typical home loan is usually repaid over a span of 25-30 years, many lenders will also want to establish what’s known as an exit strategy for older borrowers. This is an agreed plan on how you intend to pay off any loan should you run into any difficulty. Lenders generally want to see a loan repaid by the time you reach the age of 75.

Is a pension considered a form of income for a home loan?

A pension may be accepted as a form of income if it’s ongoing and won’t stop if your personal circumstances change. Pensions like the age pension or disability support pension may be an acceptable form of income, whereas other government payments like Jobseeker and Austudy aren’t.

What type of home loans are there for pensioners?

While specific ‘pensioner home loans’ aren’t usually a product offered by lenders, there are a number of different types of home loans that you may be able to apply for as a pensioner. They include:

Variable rate home loans

A variable rate home loan is one where your loan’s interest rate can change at any time, and therefore the amount of your regular loan repayment can also change. Depending on the size of the loan, even a small change to your interest rate can cause you to pay significantly more or less in repayments.

It’s important to note that any increase in pension payments that reflects changes to living costs only happens twice a year (in March and September), and changes to your pension won’t necessarily correlate to interest rate rises.

Fixed rate home loans

A fixed rate home loan allows you to lock in an interest rate for a set period of time, generally from one to five years. This means the interest you pay will stay the same for this period of time. Fixed rate home loans are generally not as heavily influenced by changes to the RBA’s cash rate as variable rate loans.

A fixed rate home loan can provide a degree of certainty, as you know exactly how much you’ll need for each repayment over the fixed rate term. At the end of that set period you may be able to move to a variable rate home loan, or negotiate a new fixed rate period.

Be mindful though, if interest rates rise, you may see a significant jump in the amount you may have to pay in regular repayments once any fixed rate period expires. Should interest rates go down during your fixed term, you may end up paying more in interest than a similar variable rate loan.

Can I receive a home loan if I am on a disability pension?

Lenders generally view a disability pension as a form of income, so you may be eligible for a home loan. You would, however, need to be approved based on how much money you want to borrow, how much income your pension provides and your ability to repay the loan. You may need to provide proof of income and assets among other things, similar to any other home loan application.

Can I get a home loan on a single parent pension?

If you’re a single parent you may be eligible for certain government payments, sometimes referred to as a single parent pension.

Whether you can get a home loan will depend on whether a lender is satisfied that you’ll be able to service the loan. Some lenders will consider Centrelink payments as part of your income.

You may also consider government initiatives like the Family Home Guarantee Scheme, which assists single parents and legal guardians of one or more dependent children with buying a house. The scheme allows eligible applicants to buy a property with as little as a 2% deposit, while also potentially avoiding Lenders Mortgage Insurance (LMI). Places are limited though, currently set at 5,000 for the 25-26 financial year.

How can pensioners unlock value in their homes?

If you own a home outright or have mostly paid one off and you want to turn some of this equity into cash, there are a number of options available.

Home Equity Access Scheme

The Home Equity Access Scheme allows you as an eligible pensioner to apply for a non-taxable loan from the Australian Government. You need to be of Age Pension age or older and be eligible for a qualifying pension. You also need to own real estate that can act as security against the loan.

The loan amount can be up to 1.5 times the maximum payment rate of your eligible pension, depending on your age and how much equity you have, and is paid fortnightly—although you may be able to get an advance payment as a lump sum.

You must repay the loan and any associated costs, but the loan’s interest rate is usually lower than a traditional home loan. Check with Services Australia to see if you may be eligible to apply and if so, how much you may be able to borrow.

Reverse mortgages

A reverse mortgage is when a financial institution lends you a portion of the value of the equity you have in your home and then uses your property as security for the loan. These mortgages are reserved for those aged 60 years and older. Unlike a standard home loan, there are no scheduled repayments required, with the interest charges being added to the balance of the loan.

The loan is typically repaid when you either:

• Sell your house

• Move into aged care

• Pass away.

The amount of money you can borrow depends on the equity you have in your property and your age.

There are risks with a reverse mortgage, as the interest rate is likely to be higher than on a standard home loan, and the interest charged also compounds over time, which means the amount you owe may get bigger. Any reverse mortgage taken out since 18 September 2012 should have negative equity protection, which means you can’t end up owing more than your home is worth.

Line of credit home loans

A line of credit home loan also uses the equity in your home to allow you to withdraw funds, based on a credit limit approved by your lender. The money can be drawn all at once or spread out over time, making it a flexible financing option.

You generally only need to pay interest on the amount of money you have drawn down at any given time, not the full credit limit. These types of loans can come with some disadvantages, such as potentially higher interest rates than typical principal and interest home loans.

It’s important to shop around to see what different types of finance options may be available to you, and what interest rates, fees and other costs they may charge. Read carefully any Target Market Determination (TMD) and Key Facts Sheet for any loan product you are considering. It may also be wise to obtain suitably qualified financial advice before proceeding.