Home loans in retirement

Ron has returned to Australia and wants to buy a house, but is worried about the process.

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Q. Ron
I have mainly lived overseas for the past eight years but have now returned to Australia to live with my Filipino partner of six years.

I am on the Age Pension. My partner is completing an Aged Care course and will work part-time as I need assistance due to a chronic back condition.

After reading a few of your articles lately, I am wondering whether we would be able to obtain a small loan to assist us in buying a property. We will have a substantial deposit (60 per cent) and will only need $50–70k depending on purchase price.

From what I have read and understand, it would cost us less to do that than rent and I will then have made some provision for my partner when I finally ‘check out’.

My partner will be a permanent resident within the next 12 months, and her application is underway.

A. Even with a healthy credit rating and large deposit, lenders now apply a much more stringent lending criteria to mortgage applications, so a home-loan approval is not guaranteed. 

It’s no longer enough to have the equity in your home as a guarantee to your lender that it will get its money back. You may have to provide an exit strategy to convince your lender that you will be able to repay the debt before your partner retires. Or, you could settle for a mortgage of a shorter duration than the standard 30 years, which will, of course, mean higher monthly repayments. 

While the Age Discrimination Act and the National Consumer Credit Protection Act mean that a person cannot be denied a mortgage based purely on their age, lenders do have a responsibility to ensure that a loan can be repaid and that borrowers are not put under financial stress by having to pay a mortgage. 

So, if you’re considering applying for a mortgage, what can you do to ensure the process is as easy as possible? 

  • Consider how much you can comfortably afford to repay and factor in a higher interest rate of around eight per cent to your calculations. This is what lenders will do and, consequently, people are finding that they can borrow less than they originally thought. 
  • Make sure your credit history is squeaky clean and don’t apply for credit unless you really need it. The introduction of comprehensive credit reporting will help those with a good credit history but it will also quite harshly punish those who have been a little wayward. 
  • Have a sizeable deposit. (It seems you already have this item checked off.)
  • Your savings could be your saviour. As with first homebuyers, if you can prove you have a good record of saving, the more likely you will be successful with your application.
  • Get your paperwork in order. Gather together details of all your investments, superannuation, savings, bank accounts and, of course, money that you owe, as the more you can demonstrate you’re in control of your finances, the better your chances of securing a loan.

If you have a Centrelink question, please send it to [email protected] and we’ll do our best to answer it for you.

Written by Ben

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