New options for financing a move to a retirement village

A retired couple needed to sell their home into order to move into a retirement village. Due to high demand, the village would only accept applications that were not conditional on selling a home.  However, they were too nervous to sign an Agreement to buy the unit in the village without knowing their sale was unconditional. 

For many retirees, moving to a retirement village is an important step toward a more secure and supported lifestyle. However, the timing of selling a family home and paying for entry into a village can create financial pressure.

We have recently been made aware of financing options on offer from some banks designed specifically to bridge this gap and provide flexibility during the transition. 

Using Home Equity to Bridge the Gap

One solution is a retirement village access (or bridging) loan, which allows homeowners to unlock equity in their property before it is sold. This type of loan is specifically designed for people who are committed to moving into a retirement village and need short-term funding to make that move possible.

Typically, borrowers must be aged 60 or over (with some flexibility where one borrower is aged between 55 and 59). The loan is secured against the family home and can be used to:

• Pay the lump sum required to acquire an occupation right in a retirement village
• Repay any existing mortgage on the property
• Set aside funds for retirement village-related expenses through a cash reserve facility.

Borrowers are encouraged to take only what they need, helping to preserve equity in their home over time.

The property must be worth $250,000 or more.

Loan Structure and Flexibility

The maximum loan amount is generally capped at 50% of the home’s value, with a minimum borrowing amount applying. Interest is calculated on the amount actually drawn down and is compounded monthly. Importantly, while regular repayments are not required, borrowers may make repayments at any time without penalty.

These loans are designed as short-term solutions, with the total loan (including interest) usually repayable within three years. Repayment is commonly made once the home is sold, with any remaining proceeds retained by the homeowner or their estate.

Protections and Considerations

To support borrowers, retirement village access loans often include key safeguards, such as:

• Limited recourse guarantees, ensuring the loan repayment will not exceed the net sale proceeds of the home
• Equity protection options, allowing borrowers to protect a portion of their future equity
• Cooling-off periods, giving borrowers time to change their mind after settlement

As with any financial product, fees apply, including valuation, arrangement, and discharge fees. Because of the complexity and long-term impact of these loans, borrowers are required to obtain independent legal advice, and independent financial advice is strongly recommended.

Accessing home equity can make the move to a retirement village smoother and less stressful, especially when selling the family home may take time.

It is important to carefully consider timeframes for selling your family home and buying into a retirement village, whether you are obtaining any type of lending or not.  We strongly recommend taking legal advice before signing any application to buy into a retirement village, especially if you need to sell your home prior to doing so.

Leading law firms committed to helping clients cost-effectively will have a range of fixed-price Initial Consultations to suit most people’s needs in quickly learning what their options are.  At Rainey Collins we have an experienced team who can answer your questions and put you on the right track.