More Australians are retiring with a mortgage
About 50% of median households in Australia are approaching retirement age with a mortgage according to the Melbourne Institute’s latest Household, Income and Labour Dynamics in Australia survey. It also shows the proportion of retirees who own their homes outright dropped from 75% to 66% in the ten years to 2023.
According to a 2025 survey of 1800 Australians published by Vanguard, 1-in-4 Millennials (currently aged between 30 and 45) plan to use superannuation to clear their mortgage.
With first home buyers entering the market later in life and taking on larger mortgages, the days of working hard and paying off your home before retirement may well be behind us.
If a working couple aged 38 take out a $800,000 home loan on a variable rate of 6.2%, they would still have around $500,000 owing at age 55.
It seems inevitable — Australia is moving toward intergenerational mortgage debt. That’s where people retire with outstanding mortgages and their children eventually inherit a property with a debt attached to it.
Speaking of children, data shows that first home buyers are not only buying later in life, they are also holding off on starting a family due to financial considerations.
For those who do eventually purchase a home, a common mistake is what I call the ‘refinancing merry-go-round’. That’s where borrowers are tempted by lower advertised rates to leave their bank and switch their loan to a new lender. Mortgage brokers are known for proactively contacting clients and prompting them to switch. However, this is not always prudent.
With a 30 year loan, it takes about 20 years before half of your monthly repayments are actually reducing your principal. That’s right. In the first few years, the majority of each repayment is interest and you are not reducing your principal by much at all. The opposite is true in the last few years of the mortgage, where the majority of your monthly repayment is reducing the principal.
So when a borrower refinance every three or four years to get a slightly lower mortgage rate, they’re effectively restarting their loan and their repayments revert to consisting almost entirely of interest. The principal on the loan is likely to have changed little since first buying the home. You can see where this is going. Keep refinancing every three to four years and you never meaningfully reduce your original principal.
In many cases, first home buyers are better off working with their incumbent lender and regularly negotiating down their home loan rate. You’d be amazed at what you can achieve. Lenders don’t like losing customers and are often willing to shave off 0.20%, for example, to retain you. That 0.2% could mean a saving of $100 or even $200 per month depending on the size of your loan.
Use this negotiated saving and, in addition to it, try add in an extra $50 per week toward making extra repayments. You’d be surprised at the difference it makes. The AFR Weekend recently reported that with an $800,000 30 year loan at 5.5%, increasing monthly repayments from $4542 to $5000 would save you almost $200,000 in interest. That’s a lot of interest!
Although Real Estate Capital’s primary objective will be to help first home buyers enter the market as early as possible, it’s good to keep the above points in mind. If you haven’t already done so, register to hear from us when we launch our low deposit first home buyer loan.
