What to look for in a home loan

The assumption may be that retirees are settled in their “forever” home, having long since paid off their mortgage. 

But that’s increasingly not the case. Some older Australians are, for one reason or another, in the market for a home loan – and it can be challenging. 

Whether it’s to downsize, relocate, or refinance an existing property, securing a home loan in later life can come with unique challenges. 

Choosing the right loan with the right features is crucial to ensure financial comfort and stability. 

Here are some key features to look for when selecting a new home loan. 

This is one of the most critical aspects of any home loan, especially for seniors who are on a fixed income. Even a small difference in the interest rate can make a big impact on monthly repayments over the life of the loan. 

You should compare interest rates across different lenders and consider whether a fixed or variable rate suits your situation. A fixed rate can provide predictability, locking in a steady payment for a set term, while a variable rate may offer lower initial payments but carries the risk of fluctuating costs. 

For retirees or those nearing retirement, a fixed-rate loan may be more appealing as it offers financial certainty, making it easier to budget. 

Seniors should consider the length of the loan term carefully. While many standard home loans come with 25 or 30-year terms, some lenders offer shorter-term options tailored to older borrowers. 

This can help ensure that the debt is paid off more quickly, possibly before retirement. However, it’s important to balance this with affordability, because shorter terms mean higher monthly repayments. Some lenders may offer the option to extend the term or adjust repayment schedules if necessary. 

Home loan fees can add up over time, affecting the total cost of the loan. Look for loans that have minimal ongoing fees, such as monthly account-keeping fees, administration charges, or annual package fees. 

Some lenders may offer discounted rates or fee waivers for seniors or retirees, so it’s worth inquiring about any special deals. 

Many home loans come with features that can be beneficial for seniors. 

An offset account is a transaction account linked to the home loan. The balance in this account offsets the amount owing on the loan, reducing the interest charged. For example, if you have $50,000 in an offset account and a $300,000 loan, you’ll only pay interest on $250,000. This can help lower overall interest payments and pay off the loan faster. 

A redraw facility allows borrowers to make extra payments on their home loan and then access those funds later if needed. For seniors, having access to additional funds can provide peace of mind, especially if unexpected expenses, such as medical bills, arise during retirement. 

It’s a good idea to check whether there are any fees or limits associated with redraws, as these can vary between lenders. 

Flexibility in making repayments is important for seniors, particularly if your income sources change in retirement. Look for home loans that allow for additional repayments without penalty, which can help reduce the loan balance faster and lower the amount of interest paid over the life of the loan. 

Some loans also offer “repayment holiday” options, which can be helpful if you experience a temporary drop in income or a need to pause repayments for a specific period. This flexibility can be a valuable safety net for seniors managing their finances in retirement. 

Seniors who may be considering moving – whether downsizing, relocating to a different state, or transitioning into a retirement village – should look for a home loan with portability features. 

A portable home loan allows you to transfer the loan to a new property without having to refinance, saving on application and exit fees. 

For those planning future moves, portability provides convenience and financial savings. It can also help seniors avoid the hassle of applying for a new loan, which can sometimes be more difficult for older borrowers. 

For some seniors, accessing equity in their home while still living in it can be an attractive option. A reverse mortgage allows older homeowners to borrow money using the equity in their home, with no repayments required until the property is sold or the homeowner moves out. 

While reverse mortgages can be helpful for seniors looking to supplement their income in retirement, they come with potential risks, such as the reduction of the equity in the home over time. 

Seniors considering this option should seek independent financial advice to understand the long-term implications for their financial security and estate planning. 

Some lenders offer home loans tailored specifically to older Australians. These loans may include more flexible lending criteria, shorter loan terms, or reduced income verification requirements. 

Ask about any home loan products specifically designed for retirees or older borrowers, as they may come with features better suited to your financial situation. 

Finally, you should choose a lender with a strong reputation for customer service, particularly if you think you may need assistance with managing their loan in the future. 

Good customer service can make the process smoother, whether it’s adjusting payment terms, answering questions about features, or addressing any concerns. 

Choosing a lender with a solid track record and a commitment to supporting older borrowers can make a big difference to the overall experience. 

Before you make any big decisions it’s a very good idea to seek professional advice from a registered financial advisor.