A Guide To Refinancing For Retirees

Overview

Refinancing for retirees is growing in popularity, as owning your own home in retirement becomes less common.

In today’s economy, more and more people enter retirement with a mortgage (of varying sizes).

Refinancing is an smart choice in retirement.

When you don’t have a regular income, money becomes tight - and saving your cash is more appealing than ever.

There are some special considerations you should make before refinancing after retirement. This guide will help you make an informed decision on whether or not refinancing is the best option.

Should you refinance?

Whether or not you should refinance your mortgage depends on a range of factors, such as your financial situation, housing needs, and how you wish to spend your work-free years.

Refinancing after retirement can present some hurdles, as you lose some leverage when you no longer have an income.

Banks don’t always like to lend money to retirees. Retirement means a lack of steady income, which can make a bank wary of issuing a fresh loan.

Having substantial savings and an excellent credit score can help put a lender’s mind at ease. The value of your property is important too.

What to consider when refinancing for retirees

There are a few elements to consider before deciding whether or not refinancing is right for you.

Choosing a loan with a lower interest rate sounds like a no-brainer, but refinancing isn’t as simple as trading one loan for another.

Fees

There will likely be several fees associated with paying off your old loan and starting a new one.

You might be saving thousands of dollars on your lower interest rate, but refinancing could cost you as much in fees.

Most lenders require an application fee for new loans and a valuation fee to have the property appraised.

You may have to pay a discharge fee to your current lender for paying off the balance of your loan, and a land registration fee to move a loan from one lender to another.

Consider any ongoing fees that your new lender requires as well. These could be higher than your current lender charges.

Add up all of these fees when considering a refinance; if you still stand to save by switching, then it’s probably worth doing.

Leverage

Refinancing for retirees can be tough because banks often view retirees as high-risk borrowers.

Lack of ongoing income could make a lender nervous about approving your loan request.

If your credit and savings don’t meet requirements, you could have a hard time finding a new loan.

Negotiation

Sometimes, you don’t need to refinance to get a better interest rate.

The lending market is competitive, and you might be able to negotiate a better rate on your current mortgage rather than going through the process of getting a new one.

Loan terms

Think about what kind of loan you want to have before you refinance.

Do you want to access your equity through a line of credit loan? Do you prefer the security of a fixed rate loan?

Consider whether or not your ideal loan terms are feasible through your current financial situation. Try out a few scenarios using our calculators here.

It can be helpful to talk to a financial advisor for professional advice.

What about downsizing?

Downsizing can be a viable alternative to refinancing for retirees.

Like refinancing, downsizing is a way to save some money by getting a new loan.

Downsizing refers to purchasing a new, smaller home and selling your existing home.

Your current home might have been just right (or even a bit small!) when you were raising a family, but it may be too much work or simply too much space once the kids have left home.

A large house can also present logistical problems.

You might struggle with upkeep, and consider hiring a landscaper or cleaner.

This is an added cost you may be able to avoid by downsizing to a smaller property.

Instead of refinancing and finding a better rate for your present home, you could sell your current house and purchase a smaller one for less money.

Retirees often find that moving into a smaller home can mean less yard work, cleaning, and maintenance as well as a lower mortgage.

Some retirees can sell their existing home for an amount that covers the cost of a new home without taking out a loan.

However, this isn’t an option for all retired homeowners.

There’s a possibility you’ll have to find a loan for your new home, which presents similar hurdles to refinancing.

Banks don’t jump at the chance to lend to retirees, since retiring means you don’t have a stable source of income.

There are logical reasons you may want to downsize over refinancing your mortgage, especially if you like the idea of less upkeep on a smaller property.

Consider the following before deciding to downsize:

Do you need the extra bedrooms? 

Consider the number of people in your household and determine how many bedrooms you need.

Are you comfortable cleaning out your sentimental items? 

Less room means you may have to get rid of some belongings; the house isn't the only sentimental item you may be saying goodbye to.

Can you compete with other buyers? 

Banks don't love the idea of lending to retirees.

The market for smaller houses is competitive right now, as millennials are entering the housing market for the first time.

You might find that buying a small house for a reasonable price is harder than you thought.

Do you plan on travelling? 

Travelling means you probably won't spend much time at home.

Downsizing might be a good idea if you plan on being away from home during retirement.

How to refinance as a retiree

If you’re ready to move forward with refinancing, it’s a good idea to meet with a financial planner.

Finance professionals can assess your financial situation and determine whether refinancing for retirees is the best option.

Financial planners can also help you optimise your retirement planning, so you don’t have to worry as much about funds as you get older.

Next, you should contact your bank and let them know you’re considering refinancing your mortgage.

They may be able to lower the interest rate for you, in which case you’ll have to decide if they are offering enough of a discount.

Finally, compare home loans from a range of lenders to see what’s on offer.

This guide is opinion only and should not be taken as financial advice. Check with a financial professional before making any decisions.

Anthony Stevenson, is the head of home loans at Compare Club. With over a decade of experience under his belt, Anthony is dedicated to helping individuals make informed decisions when choosing a home loan. Whether it's finding a great deal on your home loan or refinancing, Anthony has a wealth of knowledge in the space.

Meet our home loans expert, Anthony Stevenson

Anthony's top home loans tips

• 1

  Refinancing is the smartest, fastest way to lower your repayments and give yourself some breathing room.

• 2

  There’s more to a good value home loan than just interest rates. Are you paying high account keeping fees, or being charged for making extra repayments?

• 3

  Pre-approval and unconditional approval of your home loan are different parts of the same process. Our expert brokers cut through the jargon for you.

• 4

  Home loan pre-approval is not compulsory. It’s possible to begin your home loan application after you’ve found the home you want to buy.