You are using an outdated browser. There may be optical and technical problems.
OK, CLOSE
Enjoying retirement with no worries – that’s the dream of all new retirees. But if your own home suddenly becomes too expensive, the worries are not long in coming.
Many things will change after retirement, including your financial situation. As a rule, income falls, but expenditure does not always fall in the same proportion. And then there’s still the mortgage. For many people who are looking to retire, this is a real nightmare: what happens if my bank no longer renews the mortgage on my house or apartment when I'm retired?
Affordability of residential property in retirement is an issue that homeowners should address at an early stage. With comprehensive financial planning, you can enjoy your retirement in your own home or apartment.
If you retire, you will usually have a lower income than before you retired. The OASI pension and benefits from the pension fund as well as the assets from Pillar 3a and savings from flexible pensions in Pillar 3b must be enough to live on in the future. There are also different sources of money available – sometimes pensions, sometimes capital. Calculating how much money will be available each month after retirement is not always easy. Anyone retiring in ten to fifteen years' time should be able to accurately forecast their future disposable monthly income – possibly with the help of a pension advisor who can see if there are any gaps.
In order to determine the affordability of your home after retirement, income and current expenses for the property are compared in an affordability calculation.
A mortgage is considered affordable if the regular fixed costs for a property are no higher than 33 percent of gross disposable income.
Fixed costs include mortgage interest (calculated at 5 percent), ancillary costs (calculated at 1 percent of the purchase price) and possibly repayments (mortgage repayment).
The available income after retirement consists of Pillar 1 (OASI) and Pillar 2 (pension fund). Assets from Pillar 3 (tied and flexible pension) as well as savings and other investments are also included in some cases in the affordability statement. However, they do not necessarily have to be taken into account.
It’s not just the changed financial situation that has an impact on the affordability calculation after retirement: when you retire, the loan-to-value ratio may only amount to two thirds (67 percent) of the real estate value. Homeowners must have repaid their mortgage to this value by the time they reach regular retirement age.
Why is it worth considering affordability in old age 10 to 15 years before you retire? Because it can be improved. These options are available:
Good retirement planning offers many advantages, including reducing the risk of not being able to afford your own house or apartment in retirement. And if it comes to that?
If the mortgage is no longer repaid because it is unaffordable, owners of residential property have to sell their house or apartment. The good news is that here too, there are options for continuing to live in the property, for example through defined tenancy law. Especially if the property is sold to your descendants.
Nadine Graf is a theme manager and writes texts for AXA on topics related to insurance and beyond.
