SYDNEY, Australia – New report shows that there is currently an increasing number of old aged Australians entering retirement that is still paying mortgages.
Old aged citizens or what most people call “Baby Boomers” in the country have had worked enough to pay off their houses or home loans before entering their retirement period. However, that is not the case as a new report states otherwise.
An MLC report on the home loan issues for retirees in Australia notes the rate of homeowners still paying their mortgages during the time of their retirement in 2016 has gone up by 23% in almost ten years to as much as 36%.
Lifestyle decisions have left most of Generation X at a much higher risk of experiencing mortgage stress as they head towards their retirement, still carrying the baggage of paying their home loans.
According to Rachel Viforj, Professor of Economics at the Curtin University, Australians belonging in the so-called Generation X are currently carrying massive amounts of financial troubles, which they are most likely going to shoulder until their retirement.
Fortunately, there are various strategies in place that can help their generation manage their existing housing debts during retirement.
Countless factors have driven this unlikely turn from Gen X to a generation filled with debts. For one, house prices in the country have gone up while the increase in wages stalled. The costs for childcare and health insurance have also increased significantly over the years.
According to the head of actuarial at MLC Wealth, Jason Marler, the reality about the life of many Australians right now is about low housing affordability and a much later entry in the workforce. Mr. Marler explained that such factors were among the significant reasons that a lot of Australians were experiencing hardships getting into the housing market.
Also, he said that ultimately, Australians were left nothing but to rent a house as they continue their studies and lacks any significant savings. Mr. Marler also explained that for some, saving 20% for a house deposit has also taken longer than it should because of massive housing prices.
Dr. Di Johnson of the Griffith Business School also said that Gen X, which he explained as people born from 1965 to 1980, has chosen to wait to have children and only upgraded their houses afterward. Because of that, they were taking bigger mortgages much later in their life, she explained.
Ms. Viforj also noted that most Gen X have been using their houses as an ATM, which they often utilize to fund their expenses like tuition fees. She said that home loans have become progressively flexible, and borrowers can take out as much as they put in.
Meanwhile, the mortgage debt rate for Gen X is considerably doubled compared to what homeowners have from 20 years ago. Ms. Viforj further explained that the ratio of mortgage to the income for Australians between 35 to 44 years old was only 92% back in 1990 based on the numbers from the ABS. However, according to her, it has gone up to 209% as of 2015.
Miles from Meredith in Victoria, identifying only his name, is part of Gen X. According to him, he currently has a mortgage amounting to $450,000 after building his house on a piece of land. Mr. Miles said that he is hoping to reimburse a big part of that massive mortgage using his investment payouts to make his repayments more manageable.
However, he also explained that he still expects to carry the burden of repaying his mortgage until he retires. Mr. Miles said that he thinks he will continue to pay his mortgage even at 70.
According to him, many people from his generation have accepted that they are likely to continue feeling burdened by home loans in retirement.
Dr. Johnson agreed, saying that there are risks that older Australians are going to enter their retirement, still carrying the baggage of their mortgage repayments. She said that aside from that, Gen X is most likely to bear the costs of interest rates and servicing debts as well. Dr. Johnson further explained that those risks could even worsen if there are unexpected costs, health shocks, or disability.
Meanwhile, Mr. Marler said that those who are still paying for their home debts during their retirement years are most likely going to have lesser money they can use for living necessities. That includes expenses for food, healthcare, utilities, clothing, travel, transport, and other activities. He also said that based on the research, paying mortgage into the retirement years is a critical driving factor of dissatisfaction in life. Since, according to him, owning a house serves as an anchor to relationships, local activities, and the community.
Professor Viforj, however, warned those who are planning to hold a mortgage during retirement in the hope of taking advantage of capital gains. According to her, the economic environment has gained more volatility. She said that assuming that house prices are always going to go up after years, so it’s acceptable to carry home debts during retirement is okay is not wise.
Guilietta Carbone, 55, belongs to Gen X, and according to her, she is not prepared to risk carrying debt in retirement. She currently lives in a holiday house located in South Australia in Cape Jervis, which has a mortgage of around $389,000. Ms. Carbone is also planning to develop a parcel of land around Padthaway, a project that would require between $300,000 to $400,000 worth of the loan.
According to her, she doesn’t want to be stuck paying the mortgage during retirements, so she decided to renegotiate her home loan. Currently, she’s saving around $280 per month and accelerating her repayments by around $100 to $200 every couple of weeks.
Meanwhile, other Baby Boomers use their superannuation savings to help pay off their home loans. According to Mr. Marler, they are the first generation that made SG contributions for most of their working years, and they are using it.
Based on the MLC report, 20% of Australians at the age of over 65 years old who are withdrawing their lump sums from their SG savings use the funds for housing purposes.