Don’t believe the myth that older borrowers can’t refinance their home loan. Under the right circumstances they can.
While lenders are allowed to discriminate on the basis of income, savings record credit history and other financial factors, it is illegal for them to discriminate on the basis of age.
That doesn’t mean that lenders don’t make it hard for older Australians to sign up for mortgages – they do. What it does mean is that if older borrowers can clear the many hurdles, they too can refinance.
Why lenders don’t like older borrowers
Even though most older Australians have a long history of earning, saving and paying off debts, lenders are often reluctant to let them refinance.
Lenders won’t extend credit if they believe the loan is unlikely to be repaid – and, unfortunately, many lenders believe there is too much risk associated with Australians approaching pension age.
Their fear is that the borrower won’t work for long enough to repay the mortgage. That’s despite the fact that older refinancers are likely to be closer to the end of their loan term than younger refinancers.
How older borrowers can win over lenders
With that in mind, if older Australians want to persuade a lender into providing finance, they need to present a rock-solid case that they will indeed repay the mortgage.
For the case to be water tight, the borrower must prove they will pay off the loan before they retire.
Potential sources of income might include working for a few more years, selling assets, drawing on investment dividends and dipping into superannuation.
It would also help if the borrower could demonstrate that they had decreased their spending and therefore improved their saving rate.
Why older borrowers should refinance
One obvious reason to refinance is to access a cheaper rate. That said, it’s important for borrowers to do their sums, because if they’re nearing the end of their loan term, the costs of switching might exceed the savings generated.
Another reason is to consolidate debt. Borrowers can save money if they roll debt from higher-rate credit cards and personal loans into a lower-rate mortgage.
Older borrowers could also refinance as part of a downsize. This would probably give them a lower loan-to-valuation (LVR) ratio, which in turn might entitle them to a lower interest rate.
How to refinance
RateCity is simplifying the refinancing process with its Switch & Save Sale, which will give borrowers access to market-leading rates.
Please note that different lenders have different policies regarding how they treat older Australians.
However, RateCity has calculated that standard borrowers who are with ANZ, Commonwealth Bank, NAB or Westpac could save up to $39,000 over 15 years by switching through the Switch & Save Sale.
RateCity arrived at that figure after calculating how much borrowers would save if they switched from an average-sized mortgage from the average discounted variable rate offered by one of the big four banks to the lowest variable rate in the Switch & Save Sale.
All content on the YourLifeChoices’ website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care, but no guarantees are provided for ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness with regard to your circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances. Financial comments provided by readers cannot be relied on as professional advice, but as general comments only.