A growing number of older Australians are turning to home equity release schemes to refinance their mortgages and pay off debts as they look to manage the higher levels of inflation currently pervading the economy, according to a retirement funding specialist firm.
Household Capital chief distribution officer Paul Stratton revealed the firm had experienced a surge in referrals of retirees seeking to refinance their mortgages by tapping into the wealth in their homes.
“Around 40 per cent of our customers use a household loan to refinance their home loan and meet other major needs with the wealth in their home,” Stratton noted.
“Growing demand has resulted in annual growth of 114 per cent in the volume of loans to refinance mortgages at the end of February 2023, largely as a result of broker referrals.”
Household Capital distribution executive Fiona Navarro confirmed many of the referred clients were struggling to pay off mortgage loans and debts in the face of surging living costs and interest rate rises.
“Interest rates going up has meant that if you’re a retiree on a retirement income stream, suddenly you’ve now got to find ‘x’ amount more to repay or make your mortgage payments. It’s biting into the income that’s left to live on,” Navarro said.
She pointed out the biggest advantage of accessing home equity release schemes was the flexibility and security offered by the protections on the loan.
“The main benefit is you’re not required to make regular repayments at all and the loans are protected with what’s called a lifetime guaranteed occupancy,” she noted.
“As long as borrowers continue to pay their rates and insurance, which are the core requirements, there is no risk of the loan defaulting.
“It’s really difficult to finance a normal mortgage right now because of the 3 per cent servicing situation and borrowers feel like they might be in a position where those additional mortgage costs are biting into their ability to live properly. I think that’s another reason we are seeing the demand lift.”