Ways to handle a mortgage as you head to retirement

Happy mature man in casualwear sitting on wooden terrace of his country house and looking at you

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The prospect of having a mortgage when you retire is something we’re increasingly finding in clients aged in their late 50s and early 60s.

Many people will downsize their home, cash in part of their super or sell assets in an attempt to be debt free for retirement. Others can’t do this, but still wish to remain in their home, so how can they do that?

First steps

The first step is to consider what additional repayments you can make on your mortgage while you’re still working. The results could be well worth it. For instance, a 30% increase in the minimum monthly repayment slashes, roughly, a mortgage from 30 years to 15 years.

And often that extra can be found in the little purchases you make. You’d be surprised at the savings if you did simple things like: swap purchased lunches for packed lunches; make coffees at the office; and cook at home rather than dining out as often.

Talk to your lender

A good move is to contact your bank or mortgage broker while you’re still employed. A lot of people assume that because they’re over 55 that banks are no longer willing to lend. Not true.

What is true is that lending has become stricter in the past three years and banks are increasingly expected to lend responsibly (and rightly so!).

Banks will still lend to you if you’re over 55 provided you can demonstrate how you would repay the loan in full if you had to once you retired. One method is to demonstrate a willingness to downsize your home to a smaller unit and use the savings to help clear the mortgage.

Another method is to negotiate to transfer your loan to a 30-year term. This could make the repayments easier to handle—probably cheaper than renting—and it allows you to stay in your home.

Negotiating your loan

In negotiating your loan, there will be a number of variables for different people, but here’s an example:

Assume that the Johnsons are a couple in their early 60s. Mrs J is still working full time and Mr J works part-time, two days a week.

They bought a three-bedroom home and took out their original mortgage with a 25-year term in 2003. That means they still have 10 years to pay off the loan.

Currently, they’re paying $420 a week toward their mortgage.

When Mrs J leaves her full-time work, this will become a large portion of their weekly income, and particularly if they’re reliant on the pension.

If they were to apply the strategy above and transfer their loan to a 30-year term, their minimum required payment would drop to $198 per week.

The Johnson’s would then have a mortgage with more manageable repayments.

In the next instalment, we’ll look at how the Johnsons can find the $198 to retain their home.

Nathan Massie is a mortgage broker and director of Sprint Finance

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