How homeowners can pay off their debt before and during retirement

Feb 05, 2020
It's normal to feel anxious is you're moving into retirement with an outstanding home loan debt, but there are ways to pay it off after you stop working. Source: Getty

Aussies are embracing the changes and opportunities that come in mid and later life, but there’s an unseen downside that more and more people are facing in their 50s.

With people getting married, having kids and getting divorced later, more Aussies are reaching their 40s and 50s in worse financial situations than they’d planned for. And for Australians in their 50s, paying off their mortgage becomes a matter of urgency. The fact is, not dealing with your home loan before reaching retirement will have serious implications for your super balance, mental health and overall quality of life in your later years.

Starts at 60 spoke to Anthony Justice, the CEO of uno Home Loans for his advice on what homeowners can do to pay off their debt before or during retirement.

Devise a long-term strategy

Maintaining a comfortable lifestyle within your means and paying off your home loan requires forward planning.

“Consider setting up a weekly allowance for discretionary spending, such as entertaining with friends or having quality family time, that fits well within a monthly budget covering regular loan repayments, other larger living expenses and a retirement cushion,” Justice advises. 

Account for changes to cash flow in retirement

It goes without saying that entering a new stage of life, such as retirement, comes with changes to your lifestyle, expenses and income. Which is why Justice says it’s important to review your home loan repayment strategy in your later years against what funds you have saved and expect to continue receiving to ensure you’re on track and won’t derail your hard-earned retirement.

 Find a home loan product tailored to you

“It’s key to have a home loan product that best suits your current and future financial situation,” Justice says. “There are pros and cons to using a fixed, variable or split home loan interest rate, so researching what options are best suited to you will be time well spent.”

However, it’s important to keep in mind that a repayment schedule that works for you now may not be the optimal choice in ten years’ time. As the market changes, so too will your financial situation. Fortunately, there are online tools available that can help you navigate what is the most sensible path.

Keep on top of your repayments

Keeping track of your home loan repayments can be stressful, particularly when juggling other forms of debt such as credit cards, personal loans, and everyday bills. Justice advises you to set up direct debits from your account to ensure you avoid penalties, defaulting or dealing with the repercussions of a negatively impacted credit score down the track.

Make extra repayments

“If you have the means, making extra repayments can help to reduce the interest on your loan and the time needed to pay off your mortgage,” Justice says. While it may be tempting to put excess funds elsewhere, reducing your overall debt pre-retirement will alleviate the potential financial burden in your golden years.”

Take advantage of offset accounts

If you have a home loan that has an offset facility, ensuring all your excess savings and salary is paid into it will help to reduce the amount of interest charged to your mortgage and help you pay off your home loan sooner.

Don’t be afraid to seek professional assistance

For many Australian homeowners, paying off long-term loans such as your mortgage can feel overwhelming or isolating. Speaking to a professional can often help you get a better deal and put your mind at ease.

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