Older Australians rush to refinance mortgages

From

Paul Stratton

Household Capital, a leading Australian provider of home equity retirement funding, is experiencing a surge in demand from older Australians struggling to meet mortgage repayments given the increases in both rates and the cost of living. Approximately 30 percent of Australians retire with a mortgage, a figure that’s expected to grow over the coming years.

A large number of mortgage brokers are referring older clients, many of whom are servicing an increasing debt from a fixed retirement income. This is especially challenging when you factor in the spiralling cost of food, energy, medical expenses and a myriad of other necessities.

Data drawn from Household Capital’s customer base indicates the average borrowing to refinance a mortgage is $250,000. Some retired bank customers are paying 5% interest on their mortgage, which equates to $12,500 per annum or $240 a week the retiree has to find. Many other retired bank customers are on back book pricing of 8%, which comes in around $20,000 per annum or over $375 per week.

For brokers with clients aged 60 plus struggling to pay a mortgage (or other debt), using their home equity to discharge their debt has a number of benefits:

  • regular repayments aren’t required, which frees up the client’s income – particularly important for retirees on a fixed income
  • guaranteed occupancy – there’s no default risk as long as contractual obligations (such as paying rates and insurance) are met
  • client retains 100% ownership, so benefits from future capital growth in the home’s value
  • home equity can also be used to refinance other debts, or modify or renovate their home to remain safely and comfortably in their family home as long as they wish to
  • household Capital’s Household Loan can be repaid anytime, in part or full, without penalty.

Paul Stratton, Chief Distribution Officer at Household Capital commented, “Around 40 percent of our customers use a Household Loan to refinance their home loan and meet other major needs with the wealth in their home.”

“Growing demand has resulted in annual growth of 114 percent in the volume of loans to refinance mortgages at the end of February 2023, largely as a result of broker referrals.”

The pain of the ‘fixed rate mortgage cliff’ is expected to be felt most acutely from April 20231. As such, Household Capital expects the demand for refinancing mortgages to continue to grow throughout 2023 and beyond.

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