The benefits of downsizing your home

Senior Australians may find that the family home is bigger than they know what to do with, and may be costing a lot to maintain. Downsizing to a smaller property may not only better suit your changing lifestyle but come with financial benefits for your household budget.

If you’re on an Age Pension, the money you receive from selling the family home is exempt from the pension assets test for 12 months. The federal government is reportedly introducing a Bill to parliament to extend this exemption by an additional 12 months. This means eligible pensioners would have 24 months to purchase, build, repair or renovate a new home with the proceeds of the sale before their pension income is affected.

The proposed legislation should also reduce the deeming rate for the pension’s income test from 2.25 per cent to 0.25 per cent, which should help to reduce the effect of downsizing your home on your pension income.

So why switch to a smaller home? Some of the potential benefits include:

• Lower costs: Smaller homes are generally less expensive to buy and maintain than larger homes. This means that less of your income may need to go towards servicing a mortgage and paying bills, and more can contribute to your lifestyle.
• Easier to care for: While cleaning and maintaining your home and garden can be relaxing and even therapeutic under the right circumstances, it can also be a lot of work. Downsizing to a smaller property that holds less clutter can mean spending less time and energy looking after your home and its contents and more on what makes you happy.
• Improved flexibility: Want to get away for a long weekend? Who’s going to look after the house? If you’ve downsized to a smaller home, this may be less of an issue.
• Location, location, location: Even if you’ve grown to love your local area, you may still prefer a change of scenery. Selling up and downsizing could let you prioritise living in the location of your choice, whether that’s closer to your loved ones or to local amenities.

Ways to downsize 

When downsizing to a smaller property, you may have a few options to consider.

Buying a property allows you to do what you want with the property you purchase. However, this option may cost more, and the perfect property for your needs may not be easy to find for sale.

If the proceeds of your home sale aren’t enough to buy a smaller property outright, you may be able to consider a home loan. A larger deposit could help you qualify for the lower interest rates that many mortgage lenders offer for refinancers.

Of course, some lenders may be reluctant to lend to pensioners unless you can demonstrate that you can service the repayments on your income – a mortgage broker may be able to help you with your application.

Renting a property could offer greater flexibility, as there may be more property choices available in some areas. The payments may also be cheaper than making mortgage payments, which could leave you with more of the proceeds from selling your family home to use how you choose. This could include paying for your lifestyle expenses, or you could invest the money elsewhere, such as in your superannuation.

What are the extra costs of downsizing?

While downsizing to a smaller property could potentially help to save you money, there may also be costs you’ll need to budget for when buying and moving to a new home, including: 

• Real estate agent fees
• Stamp duty (concessions may apply for your principal place of residence)
• Conveyancer/solicitor fees
• Moving costs

Other options to consider

If downsizing isn’t for you, but you’d still like to access some financial benefits from the family home, some options you could pursue include:

• Renting out rooms: Taking in tenants could net you some extra income
• Convert to dual occupancy: No longer using all of your space? You may be able to live in one part of the home and rent or sell the other half.
• Access your equity: A home equity loan, line of credit, or reverse mortgage could let you borrow against the value of your property, so the value of your home can work for you.

Home loan options for refinancing:

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