Refinancing a home loan can be a strategic move to secure better terms or manage your finances more effectively. 

However, once you retire, the process can become more complex. Here, we explore the possibilities and considerations for refinancing your home loan, both before and after retirement. 

Lenders tend to favour younger borrowers, as they are seen to have longer earnings potential. 

Refinancing before the age of 55 can increase your chances of approval because you are likely to remain in the workforce, providing a steady income stream, for at least 10 years, if not longer. 

As you get older and retire, it’s not impossible to refinance – but it’s not easy. 

It requires more detailed planning and being able to demonstrate your ability to continue meeting mortgage repayments – or have some other “exit strategy” from the loan. 

One of the crucial aspects of refinancing close to or after retirement is proving how you will service the loan. 

Consider your income sources, such as superannuation, savings, investments, or part-time work. Make a clear plan to show the potential lender your ability to manage the repayments. 

Pros: 

• Lower interest rates: Lock in lower interest rates while still earning a regular income. 

• Longer loan terms: Secure a longer loan term, resulting in smaller monthly repayments. 

• Improved cash flow: Access equity to improve your cash flow for retirement planning. 

Cons: 

• Extended debt period: You might extend the period you’re in debt, impacting your retirement savings. 

• Fees and costs: Refinancing comes with costs, such as application fees, valuation fees, and potential exit fees. 

Pros:

• Better terms: You may find better loan terms or a more favourable interest rate, reducing monthly payments. 

• Debt consolidation: Consolidate high-interest debts into a lower-interest home loan. 

Cons: 

• Income scrutiny: Lenders will closely scrutinise your income and assets, making approval more challenging. 

• Shorter loan terms: Lenders may offer shorter loan terms, leading to higher monthly repayments. 

If you wish to refinance as a retiree, here are some ways to help improve your chances of approval: 

• Savings: Show substantial savings to reassure lenders of your financial stability. 

• Superannuation: Use your superannuation to demonstrate ongoing income. 

• Credit rating: Maintain a good credit rating to show you are a responsible borrower. 

• Selling assets: Consider selling non-essential assets to boost your financial position. 

• Consolidate debts: Reduce your liabilities by consolidating other debts. 

Speak to a financial advisor: A registered financial advisor can help you understand the implications of refinancing on your retirement plans and suggest the best course of action. 

Do you need to refinance? Assess your reasons for refinancing. Are you seeking a better interest rate, consolidating debt, or improving cash flow? Make sure the benefits outweigh the costs and risks. 

• Reverse mortgages and cash-out refinancing: These allow you to access the equity in your home without selling, but the interest rate may be high, and the loan balance will increase over time. 

• Selling and downsizing: Sell your current home, buy a smaller one, and use the remaining funds to boost your retirement savings. 

• Renting a room: Generate additional income by renting out part of your home. 

• Ask your current lender for a better rate: Sometimes, negotiating with your current lender can yield a better interest rate without the need to refinance. 

Refinancing your home loan at any time requires careful consideration and planning. By understanding the pros and cons and exploring various strategies to improve your approval chances, you can make an informed decision that aligns with your financial goals. 

Always seek professional advice to ensure you are making the best decision for your unique situation.