Buying a Retirement Home in Randwick: Loans and Planning

You can still get a home loan to buy a retirement home. Lenders just look at your situation differently from how they would for someone in their thirties.

If you are thinking about a move in or around Randwick, this article covers the loan choices worth comparing. It also covers how to avoid being pushed into whatever one bank happens to offer.

Can You Get a Home Loan for a Retirement Home?

Yes, many retirees and near-retirees can get a home loan. Lenders assess whether you can repay it, and their policies on age and retirement income differ from one lender to the next.

A lender will usually want to see where your repayments will come from. That could be part-time work, rental income, a pension, super income or savings. It may also ask how the loan fits with your plans over the next decade or two. One bank might decline you while another says yes to the same application, because each has its own rules. That is a good reason to compare lenders before you commit to one.

A broker can check several lenders for you before you apply. The Home Loans Hub team can explain how different lenders treat retirement income. You can also get a rough idea of your limit on the borrowing capacity page.

How Does a Lender Work Out Your Loan Amount in Retirement?

A lender sets your loan amount from your income, your living costs, your debts and the size of your deposit. In retirement the income side looks different, and some lenders count certain income types more generously than others.

If you are selling a family home to buy a smaller one, your deposit may be large. That can mean a lower loan to value ratio (LVR), which is the loan as a share of the property's value. A lower LVR often gives you more choice of lenders and may help you avoid Lenders Mortgage Insurance (LMI). Whether it does depends on the lender and the loan.

One trade-off to know about is that a bigger deposit means less cash in reserve. Keep enough aside for medical costs, home repairs and everyday life.

Principal and Interest or Interest Only: Which Suits Retirement?

Principal and interest repayments pay off the loan over its term. Interest only repayments cover just the interest for a set period, so the loan balance does not fall during that time.

Interest only lowers your repayments, but it costs more overall because you are not reducing the debt. Many lenders also limit how long interest only can run on an owner occupied home loan. Ask about this early.

Term length matters a lot here, and so does your age. Consider a downsizer who needs a $500,000 loan and is weighing up two terms. At the illustrative rate of 6.75% p.a., repayments over 25 years come to about $3,454 a month. Over 15 years they come to about $4,425 a month. The shorter term is almost $1,000 a month higher, but it clears the debt much sooner.

This buyer works through both figures with a broker and checks the monthly cost against their income. They choose the 25-year term, because the lower repayment suits their budget. They also choose a loan that allows extra repayments. The trade-off is that they will pay more interest in total than they would on the shorter term. You can test your own numbers with the mortgage repayment calculator.

Variable Rate, Fixed Rate or Split Rate for Retirees

A variable rate can move up or down over time. A fixed rate stays the same for a set period, and a split rate divides your loan between the two.

Fixed rates give repayment certainty, which many retirees value when income is steady and predictable. The trade-off is that fixed loans can limit extra repayments and may carry break costs if you leave early. Variable rates tend to be more flexible, but your repayments can rise. A split loan can balance the two, though you carry the downsides of both on their share of the loan.

If you already have a fixed loan that is ending, the fixed rate expiry page explains your options.

Using an Offset Account to Keep Your Cash Handy

A linked offset account is a transaction account that reduces the interest charged on your loan by the amount sitting in it. You still have access to your money.

This suits people who keep a cash buffer after selling their old home. For example, if your loan is $400,000 and your offset holds $50,000, interest is generally worked out on $350,000. Offset accounts usually come with a higher rate or an annual package fee on some loans, so check that the saving outweighs that cost. A lender that does not offer one may suit you less, so compare home loan features across lenders and not just the headline rate.

What If You Need to Buy Before You Sell?

If you need to buy before your current home sells, a short-term bridging loan may cover the gap. It lets you settle on the new place while your old home is still on the market.

Bridging finance usually costs more than a standard home loan, and you carry the risk that your old home sells for less or takes longer than planned. Read through the bridging loans page to see how it works before you decide.

Why a Randwick Broker Can Help

A local broker knows the area you want to live in and can compare a range of lenders on its panel. Randwick is home to Randwick Racecourse and sits close to the Prince of Wales Hospital, and many retirees like being near health services and transport.

Banks tend to promote their own products. A broker can compare a range of lenders on its panel, so you can see more options side by side, including the interest rate discounts different lenders offer. Brokers are generally paid a commission by the lender, and this should be disclosed to you. Our Randwick mortgage broker page has more on how we work with local buyers.

Call one of our team or book an appointment at a time that works for you. We will go through your goals, compare lenders for you and help you apply for a home loan with confidence.

Frequently Asked Questions