Buying a new home with a reverse mortgage: A game-changer for retirees and industry

For many older Australians, the dream of homeownership in retirement can seem out of reach. With limited income, traditional loans may not be an option, and liquidating assets to buy a home outright isn’t always desirable. But there’s another path—using a reverse mortgage to buy a new home. While most people associate reverse mortgages with unlocking equity in an existing home, they can also be a powerful tool for purchasing a new one.

This is a solution that benefits not just retirees, but also lenders, brokers, and real estate professionals. Understanding how reverse mortgages fit into home purchases is essential for industry stakeholders looking to serve the ageing population more effectively.

How does buying a home with a reverse mortgage work?

Unlike a traditional mortgage, a reverse mortgage allows homeowners aged 55 and over to access their home equity without ongoing regular repayments. This feature makes it a compelling option for those looking to purchase a new home without committing to monthly debt obligations.

A typical scenario looks like this:

• A retiree sells their existing home and puts part of the proceeds toward a new property.
• If the new home is more expensive or if they wish to preserve cash for living expenses, they take out a reverse mortgage (secured against the new property) to cover the shortfall.
• The loan balance grows over time with accrued interest, but repayment isn’t required until the homeowner sells, moves into aged care, or passes away.

This approach enables retirees to retain financial flexibility while securing a home that better suits their needs.

Case study: Making homeownership possible

Let’s take the example of John and Mary, a retired couple in their 70s living in Sydney. They are renting but wish to purchase a $1,000,000 home to be closer to their family. They have $800,000 in cash at the bank, but after considering stamp duty and other costs ($40,000), they’re short by $240,000.

A reverse mortgage allows them to borrow the necessary funds, securing their new home without the stress of monthly repayments. At their age, they may be eligible to borrow up to $300,000, ensuring a comfortable buffer without exhausting their savings.

This flexibility makes homeownership achievable for those who otherwise might have had to settle for a rental or compromise on their lifestyle or they home they thought was only just out of their reach.

Why this matters for the industry

For professionals in mortgage broking, real estate, and financial services, reverse mortgages for home purchases represent an emerging opportunity. Here’s why:

1. Increased housing mobility for seniors: Many retirees want to downsize but are hesitant due to financial constraints. A reverse mortgage removes this barrier, unlocking housing stock and fuelling the property market.
2. New lending & advisory avenues: Lenders and brokers who educate their clients about this strategy can differentiate themselves in an evolving market. Providing reverse mortgage solutions for home purchases adds a valuable service to an ageing customer base.
3. Real estate benefits: Agents often struggle to help seniors who can’t secure a conventional loan. Understanding reverse mortgage options allows them to offer solutions, increasing sales and commissions while ensuring older buyers find suitable homes.

Key considerations and protections for borrowers

Reverse mortgages in Australia are strictly regulated to protect borrowers. Key safeguards include:

• No Negative Equity Guarantee (NNEG): Borrowers can never owe more than the value of their home, even if property values decline.
• Retained ownership: The homeowner remains on the title deed, with the flexibility to sell or repay the loan at any time.
• Independent Legal Advice: All borrowers must receive independent legal advice before proceeding, ensuring they fully understand the implications.

A potential game-changer for retirees and industry

With a rapidly growing ageing population, the demand for financially sustainable housing solutions is set to rise. Reverse mortgages for home purchases present a win-win—they allow seniors to secure suitable housing without compromising their financial independence, while also creating new opportunities for brokers, lenders, and real estate professionals.

By considering reverse mortgages as a potential home-buying solution, we can empower more retirees to achieve homeownership on their terms—while driving meaningful business growth.