Home loans for pensioners

• Yes, pensioners can get a home loan.
• The terms and conditions may be different from regular home loans and vary depending on the lender.
• Find out what loan assistance is available to pensioners and what you can do to improve your chances of being approved.

Can pensioners get home loans in the Australian housing market? Yes, they can. But older Australians trying to get a home loan may face challenges that younger people do not.

We have done the research to help you find out more about home loan options for pensioners and the types of assistance available. Read on to find out about the documents you need and what lenders consider so you can apply successfully as a pensioner.

What options are available for pensioners?

As a pensioner, you can choose from various types of home loan. However, your options with traditional lenders may be limited because your age puts you in a high risk category from a lender’s point of view. You may need to consider non-traditional lenders that are more flexible.

Variable and fixed rate pensioner home loans

Some lenders may offer regular variable and fixed rate loans to pensioners.

• Fixed rate home loans allow you to lock in the interest rate for a period of time, usually from one to five years. During that time, you will know exactly what your monthly loan payment will be since the rate will not change.
• Variable rate home loans have rates that can change, typically because the RBA changes their cash rate. Variable rates can go up or down. As a result, you will not know exactly how much you need to pay on a monthly basis. This is less of an issue in the short term, but harder to forecast several years out.

Your home loan interest rates on either type may vary depending on a number of factors:

• Whether you are buying a home to live in or as a residential investment.
• Whether you plan to pay back principal and interest or interest only.
• The amount you wish to borrow as a percentage of property value.

Bridging loans

Bridging loans are a type of short term loan used to cover the gap between buying their new home and selling the old. They are most typically used because of upgrading or downsizing property.

Closed bridging loans are used when your Contract of Sale is finalised and you know when you will receive funds. Otherwise you can use an open bridging loan that lasts up to 12 months.

Interest is payable once the sale is completed and the bridging loan has been closed. You may choose to make payments on the loan to reduce interest costs. Stamp duty, legal fees and other upfront costs can be added to a bridging loan when there is sufficient equity and property value.

Reverse mortgages

A reverse mortgage is a type of loan where the money you borrow is secured against the value of your home.

Eligibility depends on your age, home ownership and your original mortgage. How much you can borrow also depends on your age.

Find out more about how reverse mortgages work and answers to frequently asked questions.

Line of credit home loans

If you are a pensioner looking to get your hands on some extra funds, a line of credit home loan is another option you can explore.

A line of credit is a pre-arranged amount of money you can draw on, either at once or over a period of time.

To be eligible, you have to own a property and have available equity on it. On a line of credit you have to pay an interest-only monthly payment as minimum due. Lines of credit usually carry higher interest rates and can become rather costly if you do not work on reducing the balance.

Investment home loans

If you do not own a property, but are the recipient of an Age Pension, you may still be eligible for an investment home loan to buy a property as an investment. Lenders will consider potential rental income on that property when evaluating your investment home loan application.

Rental income can be used to cover your mortgage payments on the property. What is left over will be an additional source of income for you. Beware that your additional income may affect your pension and other government entitlements.

To find out how your benefits could be affected, contact a Financial Information Service Officer at Centrelink.

What assistance is available to pensioners?

Several state and federal schemes exist to help pensioners buy a home.

Pension Loans Scheme

The Pension Loans Scheme enables older Australians to obtain a non-taxable loan from the Australian Government, rather than a commercial bank or lender. Depending on how old you are and the level of equity in any property you own, your loan amount can reach 1.5 times the maximum payment of your eligible pension. It is paid fortnightly.

To be eligible, you or your partner must be of the Age Pension age and eligible to receive or are receiving a qualifying pension. You need to own real estate in the country with appropriate insurance that you can use as security. Bankruptcy and personal insolvency disqualify you for this loan scheme.

One-off concessions

One-off duty exemptions or concessions are available for eligible pensioners to buy a new or established home to live in as their principal place of residence (PPR) valued up to $750,000.

Victoria and Tasmania, and the two territories of the ACT and NT, offer seniors this concession to help with downsizing to more suitable homes. Western Australia has a general concession for off-the-plan apartments.

Considerations for pensioners

Looking at it from a lender's point of view, you can appreciate that their main concern is your ability to repay the home loan and their exposure to the risk that you can’t.

Just as with any other loan applicant, you will be asked to show some proof as follows.

• Income. Regular cash inflow offers proof that you are able to pay off the loan. This can come from a job, part time employment, investments, or from a pension.
• Pension status. Being a recipient of a disability pension or veteran’s pension is acceptable.
• Credit score. You will have to show an acceptable credit score to be eligible for a pensioner home loan.

What documents do you need?

Pensioners applying for a home loan should expect to provide a few more documents than you did in your younger days. While the exact requirements may vary by lender, you will generally be asked to show additional proof of income, savings, and assets.

• Evidence that you have sufficient funds to pay up the deposit.
• Bank statements for up to 6 months showing money deposited from Centrelink
• A letter from Centrelink that confirms your status and disability pension

Talk to a broker

Getting the support of a mortgage broker is a good idea because brokers are accustomed to help you find lenders that would consider your circumstances. Brokers are typically in touch with and have access to a wide range of lenders. They can offer advice on the loan application process and help you prepare your loan application. And you don’t need to pay the brokerage fee. It is paid by the lender, once the loan goes through.