Can a pensioner get a home loan?
There are still home loan products out there for pensioners looking to buy a new home, but you may have to look beyond the usual traditional lenders. Pensioner home loans offered by non-traditional lenders come in a variety of different product types (see below).
Getting approved for a home loan as a pensioner can be considerably more difficult than the usual process. The main difference between pensioner home loans and other home loans is that borrowers can expect a pensioner home loan to charge a higher interest rate due to the higher expected lending risk.
Lenders tend to view pensioners as a higher-risk borrower due to their life expectancy and the fact that their incomes are typically much lower on average. A pensioner’s age also stops them getting a home loan in many cases, as traditional home loan terms tend to be around 20-30 years.
An older borrower will have a much more limited life expectancy and is therefore at a higher risk of passing away before the loan can be repaid.
Lenders also usually place a higher degree of scrutiny on a pensioner borrower’s credit score and credit history, so the borrower could face more difficulty getting a loan if they have a history of failing to meet previous loan or credit repayments.
Types of home loans for pensioners
There are a number of different home loan types available to pensioners looking for a home loan:
- Reverse mortgages
- Line of credit home loans
- Variable rate pensioner home loans
- Fixed rate pensioner home loans
1. Reverse mortgages
The most common form of home borrowing for pensioners and retirees is a reverse mortgage. A reverse mortgage is a type of home loan where the bank lends you a portion of the house’s value. The loan uses the house as security, but you still own your home.
Reverse mortgages in Australia are reserved for those who are 60 years and older, and there are no scheduled required repayments, unlike with a standard home loan. In a reverse mortgage, the interest repayments are added to the balance of the loan, and the loan is only repaid when you:
- Sell the house, or
- Move into aged care, or
- Pass away
As you age, the amount of money you could borrow through a reverse mortgage changes. In most cases, 60 year olds can borrow roughly 20% of the value of the property, and 70+ year olds are able to borrow around 30%. The amount that anyone can own of a property is capped at 45%.
2. Line of credit home loans
The second option available to pensioners in terms of home loans is a line of credit home loan. A line of credit home loan uses the equity in your home to allow you to withdraw funds from the value of your property.
The amount approved by your financial institution can be used either all at once or spread out over time, making it a flexible financing option. Line of credit loans are popular with people who don’t believe that they’ll need the full value of a loan, such as pensioners.
To see an example of how a line of credit loan works as well as the pros and cons, then make sure you read our article on what a line of credit is.
3. Variable rate pensioner home loans
Variable rate home loans are another option, a type of home loan where your interest rate changes to match the current home loans environment, and therefore the monthly loan repayments can change in amount.
A change of just 1% in your interest rate can cause you to pay hundreds more per month. But conversely, our currently low RBA cash rate has resulted in variable interest rates around 4% p.a., which means that those on a variable rate loan have been paying less in interest than in the past.
Variable rate home loans aren’t designed specifically for pensioners, and a pensioner may struggle to afford it if interest rates rise, since a pension is a fixed source of income. However, you can see what’s out there anyway by viewing the table below, and you can look at our variable rate comparison tool to see what kind of rates are available to you.
If you’re currently considering a home loan, the comparison table below displays some of the variable rate home loans on our database with links to lenders’ websites that are available for first home buyers. This table is sorted by Star Rating (highest to lowest), followed by comparison rate (lowest-highest). Products shown are principal and interest home loans available for a loan amount of $350K in NSW with an LVR of 80% of the property value.
Before committing to a particular home loan product, check upfront with your lender and read the applicable loan documentation to confirm whether the terms of the loan meet your needs and repayment capacity. Use Canstar’s home loan selector to view a wider range of home loan products.
*Comparison rate based on loan amount of $150,000 and a term of 25 years. Read the Comparison Rate Warning
4. Fixed rate pensioner home loans
A fixed rate home loan is a type of home loan that allows the borrower to lock in an interest rate for a set period of time, usually from 1 year up to 5 years.
The interest rate that the borrower pays will stay the same for this period of time, and is not subject to changes in the market or the RBA cash rate. You can view the current interest rates for all fixed interest rates here.
Fixed rate home loans have pros and cons. On the one hand, they give a certain degree of cash flow certainty, as you know exactly how much you’ll need to pay every month over the fixed rate term. However, if variable interest rates get lowered during your fixed term, you can end up paying more than you need to in interest.
Can I get a home loan on a disability pension?
This on how much income your pension provides and the lender you choose. Potential borrowers need to provide proof of income and ability to repay the loan, living expenses, a good credit rating, a good savings history, stable employment, and a sizeable deposit.
A disability pension is considered a genuine form of income by the majority of financial institutions, and as such, your application should be assessed on its merits just like any other home loan application. However, you may need to speak to a lender’s mortgage manager to see whether your income level from a disability pension would be sufficient to apply for a home loan.
Most lenders will allow you to apply for a home loan through a veteran’s pension if you receive the following types of payments:
- The Department of Veteran’s Affairs Service Pension
- The Department of Veteran’s Affairs War Widows Pension
- Department of Veterans’ Affairs Age Pension
- The Department of Veterans’ Affairs Incapacity Pension
Compare home loans for pensioners
It’s extremely important to consider your own situation carefully before making any financial decisions as a pensioner. It would be wise for pensioners to obtain professional financial advice before deciding to look for a home loan.
If you do decide to look for a home loan, do your own research, compare different home loan products and lenders, and decide which home loan is best for you based on what you need. Fortunately for you, Canstar compare thousands of home loan products from nearly 100 different lenders around Australia.
The average interest rates on Canstar’s database for standard variable rate and 3-year fixed rate home loans at the time of writing is 4.50% p.a. and 4.15% p.a. respectively, but we can help you find a lower interest than that. Then there are the features you might need on a loan, which we also research and compare on our website.
Use our comparison pages to see what’s available in home loans and reverse mortgages based on your criteria.