Beginner's Guide to Retirement Home Loans

Buying a retirement home often means applying for finance while your income is shifting, your borrowing picture is changing, or your plans involve selling one property to buy another.

The loan that made sense at 45 rarely fits at 65. Lenders assess retirement home purchases differently depending on whether you're still working, newly retired, or funding the purchase through a combination of super, sale proceeds and borrowing. What matters is understanding which structures give you access to the amount you need without locking you into repayments that don't suit your income in retirement.

Can You Borrow for a Retirement Home After You've Stopped Working?

You can borrow after you've retired, but the lender will assess your application based on your current and projected income, not your previous salary. Assessable income typically includes the age pension, allocated pension drawdowns from superannuation, rental income from investment properties, and income from annuities or other structured products. Some lenders will also recognise regular distributions from family trusts or dividends from investments, provided those income streams are stable and likely to continue.

Consider a borrower in Woollahra who has retired at 67 and wants to purchase a unit in Double Bay for $1,825,000. They've sold their family home in Rose Bay for $7,000,000, cleared their existing mortgage, and plan to use $1,500,000 as a deposit. They need to borrow $325,000. Their assessable income consists of $45,000 per year from the age pension and $60,000 per year from an account-based pension. At current variable rates and applying the 3.0 percentage point serviceability buffer required under APRA policy, the lender assesses whether they can service the loan at a rate roughly 3 percentage points above the actual product rate. In this scenario, the loan is approved on a principal and interest structure over a 10-year term, with repayments structured to fit comfortably within their pension income. The outcome is a loan amount well within their capacity, a term that ensures the loan is repaid while they're still receiving pension income, and no requirement to touch the remaining sale proceeds set aside for lifestyle and contingency.

Lenders will typically cap the loan term based on your age at application. A borrower aged 65 may be offered a maximum term of 10 to 15 years, while a borrower aged 70 may be limited to 10 years or less. Shorter terms mean higher repayments, so it's worth comparing how different lenders calculate age-based term limits before you settle on a structure. Some lenders assess to age 75, others to 80, and a small number have no upper age limit provided serviceability is demonstrated.

Should You Use a Fixed Rate, Variable Rate or Split Rate on a Retirement Home Loan?

Retirement borrowers generally benefit more from variable or split rate structures than from locking in a long fixed term. A variable rate gives you full access to offset and redraw, lets you make unlimited extra repayments without penalty, and allows you to exit the loan early if your circumstances change. That flexibility matters when you're managing drawdowns, lump sum payments, or the possibility of paying out the loan from an inheritance, sale proceeds or a decision to downsize further.

A split rate structure lets you fix a portion of the loan for rate certainty on your minimum repayments while keeping the remainder variable for flexibility. That combination works well if you want predictable budgeting on part of the debt but also expect to make lump sum reductions from super or investment income over the loan term. A borrower fixing 50 per cent of a $400,000 loan at a fixed rate knows exactly what half their repayment will be for the next two or three years, while the variable portion can be reduced with offset funds or paid down as cash flow allows.

Fixed rates come with break costs if you repay early, and those costs can be significant if rates have fallen since you locked in. Retirement borrowers are more likely than other buyers to exit a loan within the first few years due to health changes, further downsizing, or receiving proceeds from the sale of an investment property. For that reason, avoid fixing the entire loan unless you're certain you'll hold it to term.

How Do Lenders Assess Loan Applications from Self-Employed Borrowers in Retirement?

Self-employed borrowers transitioning into retirement face a serviceability assessment based on their most recent financials, just as they would earlier in life. If you're still operating a business and drawing income, lenders will ask for tax returns, usually the most recent two years, along with a profit and loss statement and sometimes a business activity statement. What shifts is that lenders also want to see a clear exit plan or evidence that the income will continue post-settlement.

If you've recently sold or closed your business and are now relying on proceeds held in offset, super or investments, those proceeds are treated as assets rather than income. You'll need to demonstrate that the drawdown structure you've put in place produces assessable income the lender can factor into serviceability. A self-employed borrower in Paddington who sold a consulting practice and rolled the proceeds into an allocated pension can usually demonstrate stable income from that pension, but they need to provide the pension statement and confirmation from their super fund that the drawdown rate is sustainable.

Some lenders will allow you to demonstrate serviceability using a combination of current business income and pension income if you're semi-retired. That approach works if you're winding down your hours but still generating assessable profit. The key is making sure your accountant structures your income in a way the lender can assess, and that you apply before your business income drops below the threshold where it's no longer counted.

What Happens If You Need a Bridging Loan Between Selling One Home and Buying Another?

A bridging loan lets you purchase your new retirement home before you've settled the sale of your existing property. It's a short-term facility, usually structured for six to twelve months, that covers the purchase price of the new home while you continue to own the old one. Once the sale settles, you use the proceeds to repay the bridging portion and revert to a standard home loan on the amount you're keeping.

Bridging works well in prestige markets like Woollahra, Rose Bay and Double Bay where settlement periods can be extended and where you want to secure a specific property without rushing the sale of your existing home. Lenders assess bridging applications on end debt serviceability, meaning they calculate whether you can service the loan you'll be left with after the sale proceeds are applied. They also factor in peak debt serviceability during the bridging period, though that's usually a shorter test given the temporary nature of the facility.

Bridging interest is typically capitalised, meaning it's added to the loan balance rather than paid monthly. That structure keeps your cash flow intact during the transition, but you need to account for the capitalised interest when calculating how much of your sale proceeds will be left after repayment. A buyer purchasing a $4,900,000 house in Woollahra while selling a $7,000,000 property in Rose Bay might bridge $4,900,000 for four months, with capitalised interest of roughly $65,000 to $80,000 depending on the rate. After the sale settles and the bridge is repaid, they're left with a clear title or a small ongoing loan depending on how much of the sale proceeds they choose to retain for other purposes.

Does the Size of Your Deposit Change the Interest Rate You're Offered?

Your deposit size directly affects both your interest rate and your access to certain loan features. Borrowers with a deposit of 20 per cent or more avoid Lenders Mortgage Insurance and typically qualify for the lender's lowest published rates. Borrowers with a deposit below 20 per cent pay LMI, which is calculated on a sliding scale based on the loan amount and LVR, and may be offered a slightly higher rate depending on the lender's risk pricing.

Retirement buyers usually have substantial equity from the sale of a previous home, an investment property, or drawdowns from super, which means most are borrowing at an LVR well below 80 per cent. At that level, you're in the lowest risk band and have access to the full range of home loan features including offset, redraw, split rates and portability. If your deposit pushes your LVR below 60 per cent, some lenders offer additional rate discounts, particularly for owner-occupied purchases.

An offset account is one of the most valuable features for a retirement borrower. It lets you park your sale proceeds, super drawdowns or other liquid assets in a transaction account linked to your loan, and the balance in that account offsets the interest charged on the loan daily. A borrower with a $300,000 loan and $200,000 in offset is only charged interest on the net $100,000, which can reduce the loan term significantly if the offset balance remains stable. Offset also preserves liquidity, meaning you're not locking funds into the loan via extra repayments that may be harder to access if your circumstances change.

How Does Home Loan Pre-Approval Work for a Retirement Purchase?

Home loan pre-approval confirms how much you can borrow and gives you certainty before you start looking at properties. For retirement buyers, pre-approval also clarifies which income sources the lender will accept, what documentation you'll need at full application, and whether there are any age-based term limits that will affect your borrowing capacity.

Pre-approval is conditional. The lender assesses your income, liabilities, assets and credit history, then issues a letter confirming they're willing to lend up to a specified amount, subject to satisfactory property valuation and final checks. That approval is typically valid for three to six months depending on the lender. If your income changes during that period, such as moving from part-time work to full retirement, you'll need to update the lender and they may reassess your capacity.

Retirement buyers benefit from pre-approval because it removes uncertainty around term limits and serviceability before they commit to a contract. A borrower who discovers at pre-approval that their preferred lender will only lend to age 75, giving them a maximum 8-year term, can either adjust their borrowing amount to fit the higher repayments or switch to a lender with a longer term policy. That adjustment is far simpler to make before you've signed a contract than after.

Call one of our team or book an appointment at a time that works for you. We'll walk through your income structure, your sale timeline if you're bridging, and the loan features that give you the most flexibility as your circumstances shift into retirement.

Frequently Asked Questions