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Mortgages for pensioners
It is more difficult, but Kiwi borrowers on pensions can get mortgages.
Some lenders view pensioners as high-risk borrowers. However, lenders are willing to offer mortgages to individuals receiving pension benefits, even if you’re in your 60s or 70s. Read on to learn more about what options are available.
How can I get a mortgage on a pension?
Pensioners applying for a mortgage must consider that their income and financial position might limit their success in getting a loan, mainly because the pension is lower than the income level most lenders require.
However, there are several ways a pensioner can apply for mortgage finance. The best option for you depends on your financial situation.
Apply for a standard mortgage
If you have income from other sources or are only borrowing a small amount, you may be able to apply for a mortgage like any borrower. If this is your situation, you may get a very competitive interest rate, so be sure to compare your options.
Apply with a specialist lender
Some lenders specialise in providing finance solutions to borrowers in difficult or unique circumstances. There are even lenders who focus entirely on older borrowers.
Talk to a mortgage broker
Perhaps the best option for pensioners looking for a mortgage is to contact a mortgage broker. They specialise in helping borrowers in unique circumstances and have access to a wide panel of lenders.
A broker can help you look for loans and lenders that match your requirements. Their services are typically free to you because the lender you choose pays them a commission.
What documents do pensioners need for a mortgage?
As a pensioner, you need to provide additional documents to the standard documents for a mortgage application. Every lender has its requirements, but you typically need to provide the following:
- Evidence of funds to complete the deposit
- Bank statements showing you receive your pension in your bank account; for example, some lenders require six months of recent bank statements
- A letter from WINZ confirming the status and nature of your disability pension (if you have one)
What about borrowers on disability allowance or a veterans’ pension?
Usually, lenders consider a disability allowance from WINZ to be a valid form of income, meaning they treat a mortgage application for someone on a disability allowance just like any other.
Most lenders review your application on a case-by-case basis. Eligibility for a mortgage depends on the amount of income you receive and how much you can use to service a loan.
Other factors, including your age, assets and debts, are also assessed by a lender on an individual basis.
Lenders may accept a Veteran’s Pension from Veterans’ Affairs as a source of income for a mortgage, which applies if you are receiving:
- Surviving Spouse or Partner Pension
- Disablement Pension (previously the War Disablement Pension)
- Veteran’s Pension
To demonstrate your pension as a source of income for a mortgage application, you need either a current bank statement showing your pension payment or a recent Department of Veterans’ Affairs statement.
Other mortgage types for older borrowers
If you’re a pensioner who already owns your own home, you have some other finance options. Both reverse mortgages and line of credit loans allow you to borrow money against the equity in your home.
- Reverse mortgages. A reverse mortgage allows you to borrow funds using equity from your home as security. It can be paid as a lump sum, a regular stream of income, a line of credit or a combination of these. No income is needed for a reverse mortgage, and for this reason, the interest rate tends to be higher. You must repay the sum of borrowed money when you sell your home, pass away or move into aged care.
- Line of credit loans. A line of credit is a funding stream that uses the equity in your home. It’s an approved amount that you can use a little at a time or all at once. Your lender approves your loan against security, and you can draw on this amount at any time. You only pay interest on the amount you use; for example, if you have a line of credit of $200,000 and only use $50,000, you only pay interest on the $50,000. They are suitable for those who are unsure if they need the total value of a loan.
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