Money

Older Aussies miss out on better mortgage rates because they ‘can’t be bothered’

Feb 15, 2019

Just four in ten over-50s said they would consider refinancing their mortgage. Source: Getty.

As far as lending goes, taking out a home loan is one of the biggest borrowing decisions you are ever likely to make, but new data has revealed that the majority of older Australians fail to shop around for a better deal.

Just four in ten over-50s said they would consider refinancing their mortgage, according to the results of realestate.com.au’s Consumer Confidence Survey, while 68 per cent of homeowners over the age of 50 admitted they “don’t bother” to review their home loans annually. From cutting down your monthly repayment costs to paying off your loan sooner, there are many potential benefits to refinancing your home loan. Not to mention you could save a lot of money in the long run.

This is particularly pertinent given that the number of Aussies retiring with a mortgage still to pay off is increasing. The Australian Bureau of Statistics reported in late 2017 that the number of ‘older households’ – meaning that the key resident is aged 55 or above – with a mortgage on their primary dwelling had markedly increased since 1995-96.

Starts at 60 spoke to Andrew Russell, head of home loans at realestate.com.au, about the benefits of refinancing your home loan. Here’s what he advised:

What stops people from shopping around?

“The thought of trying to get all your finances together and having a financial chat about getting a better deal for you on your home loan always seems quite hard,” Russell says. “It’s a lack of information and there’s also an aspect of procrastination. In my experience, I’ve found that many people don’t feel confident with numbers and the whole mortgage process can seem quite scary.”

He advises reaching out to your mortgage broker or financial adviser to have a chat about the possibility of refinancing. Even talking it over with money-savvy family members could help. “Once you start having the conversation, the anxiety drops and then you can see the benefits of how getting a refinanced loan could improve your financial position,” Russell says.

What are the benefits of refinancing?

The most obvious benefit of refinancing your home loan is the opportunity of securing a better rate, meaning lower repayments, but there are other potential upsides, such as the ability to offset your savings against your loan. Russell explained: “A better rate means two things – on a cash flow basis you are going to have lower repayments on a monthly basis if you get a better rate, and you should be able to pay your home off faster.

“Depending what loan product you currently have, there may also be products and features that you don’t have that could be beneficial for you. Such as having an offset account, to be able to have all your income, savings and all your investment income all going into the one account, which will obviously lower your loan outstanding balance and reduce your interest payments, allowing you to pay your loan off quicker.

“A better deal might also come with different internet banking capabilities, so you can link other loans and investments that you have into just one or two accounts.”

Where do I start?

“The best way to start is always to build your confidence by doing some research on the Internet,” Russell added. “There’s plenty of information there for people of all ages.

“In our country, we do have an ageing population and banks are very aware of that profile. But they’re also very aware that, given the price of property in this country, people are buying their first home or their second home a lot later. As a result you’re going to have a home loan close to, or over, your retirement age.

“I suggest the first point of call should be going to speak to your mortgage broker. They are credit professionals and will have a wealth of information in terms of being able to understand your needs, your current home loan provider and will have information that will be suitable for you to be able to switch to a better deal.”

I’m over-55, will it be harder for me to refinance?

While over-55s may have less earning potential than younger buyers, Russell says there is no reason not to refinance your home loan in later life as long as you have an appropriate exit strategy. An exit strategy is effectively a mortgage repayment plan that outlines exactly how you will meet the repayments.

He adds: “If you are already retired or approaching retirement, what the banks ask for when you are getting a new loan, or refinancing your loan, is that you have an appropriate exit strategy to suit your particular circumstances.

“You’ve got to understand your exit plan, so you can either increase your repayments if you’ve got that cash flow and meet the term of the loan, if you haven’t met that retirement age. Or you’ve got your financial affairs structured in a way that you can clearly show the bank that you’ve got enough income to continue to pay the loan but also to live comfortably in retirement.”

Is now a good time to seek out a better deal?

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry released its final report last week, with Commissioner Kenneth Hayne delivering a harsh blow to the financial services industry across Australia and shining a light on poor practices and the lack of trust among the public.

However Russell explains that the recent focus on responsible lending practices, following the commission’s findings, could actually prove beneficial to consumers as banks strive to rebuild confidence and attract new customers. “It doesn’t matter what age you are but if you are looking at the internet and watching the news, you can see that banks are out trying to get more customers in, that means it’s quite possible that you’ll be able to get a better rate,” he told Starts at 60.

“As a result of the royal commission, there’s certainly a greater scrutiny on lending,” he adds. “In this current market, banks are looking very competitive and looking for customers, it’s a great time to get a better rate on your home loan. You could save a tremendous amount of money and in the market right now, I recommend that if you have a home loan – particularly within this age demographic – to reach out and see if you can get a better deal, because it’s quite possible you will be able to.”

These findings were backed up by another recent study, conducted by Gateway Bank, which revealed that, among their customers, 49 per cent of the over-55 cohort never look around to see if they could bag themselves a better rate.

Paul Thomas, CEO of Gateway Bank, says: “While it may be tricky for older mortgage holders to refinance, it’s certainly not impossible. The key to putting your best foot forward when you’re over 55 – or even over 50 – and looking to refinance is to prove to credit providers that you have a concrete exit strategy in place.

“Strong exit strategies will demonstrate to a new lender that you will have access to either a lump-sum, or ongoing source of income even after you hit the golden age of retirement. The sale of an additional investment property or your superannuation could play a vital role in your exit strategy.”