Downsizing your home

Downsizing at a glance

• Downsizing your home can reduce the size of your mortgage and ongoing running costs in some situations, but buying and selling costs can add up.

• Your equity and loan to value ratio (LVR) can affect your next loan options and costs, including whether lenders mortgage insurance (LMI) applies.

• If you’re 55 or older, there are government rules that may allow eligible people to contribute some proceeds from selling their home into super (a downsizer contribution).

• Downsizing isn’t the only path; there are alternatives worth understanding before you decide to move.

What downsizing means when buying your next home?

Downsizing is when you sell your current home and buy a smaller one. For some people, it’s about reducing costs or choosing a home that’s easier to maintain; for others it’s about lifestyle changes like being closer to family, transport, or services. Because property prices have risen over time, selling a larger home may free up money to help fund the next purchase, though what you keep depends on costs and your choices.

Who typically thinks about downsizing a house?

Downsizing your home can come up at different life stages, including:

• Households with changing space needs (for example, fewer bedrooms required).

• People downsizing for retirement with a home that better suits their lifestyle now.

• Homeowners who want lower upkeep or a different type of property (such as a low maintenance townhouse, apartment or single-level home).

• Buyers thinking about how equity and borrowing power affect their next move.

Pros and cons of downsizing

Downsizing can make your next move easier, but it also comes with trade-offs. Understanding both sides helps you decide if it’s the right step for your situation.

Pros

• You may be able to reduce your mortgage if you borrow less for the next property, which could lower repayments.

• A smaller home may have lower running costs (utilities, rates and general upkeep), depending on the property type and location.

• You can choose a home that suits your current lifestyle.

Cons

• Selling and buying can involve fees, which can reduce the money you keep.

• Your interest rate and repayments may change even if the new loan is smaller (for example, if you’re coming off a past fixed rate).

• Downsizing can be an emotional decision; leaving a long-term family home or adjusting to a smaller space may take time.

How downsizing affects loans, equity and borrowing power

Equity and LVR (loan to value ratio)

Your home equity can influence your next loan options because it affects your LVR, the percentage of the purchase price you need to borrow. A lower LVR may improve access to competitive rates and may reduce upfront costs such as LMI, depending on your situation.

Borrowing power

Your borrowing power may change after downsizing, even if your income stays the same, because lenders reassess expenses, debts and your overall position when you apply for a new loan. Using a borrowing power calculator can help you estimate what you may be able to afford before you commit to a purchase.

Loan features

Downsizing gives you the chance to review which loan features suit your next life stage. Options like offset accounts, extra repayments or redraw facilities can help manage cash flow and provide flexibility. Choosing a loan structure that matches how you plan to live and spend can help you get more value from your new home loan.

Downsizing your home to boost super

Some government policies are designed to support older Australians who are downsizing. The downsizer super contribution, allows eligible people aged 55 and over to contribute money from the sale of their main residence into superannuation. This can help boost retirement savings, but eligibility rules, contribution limits and timing requirements apply. Because government rules can change, it’s important to check current settings and understand the implications before finalising your downsizing plans. Speaking with us can help you decide whether this option suits your long-term plans.

Alternatives to downsizing

Downsizing isn’t the only way to change your housing or financial position. Depending on your goals, alternatives can include:

Staying put and reviewing how your loan works

Some people explore ways to manage cash flow without moving by understanding how different loan features work and what flexibility may be available.

Renovating or reconfiguring your existing home

If your main motivation is lifestyle (layout, accessibility, reducing upkeep in certain areas), changing your current home through renovations may be another pathway to consider.

Waiting for clarity

For many people the best first step is simply getting clear on numbers, timeframes and options, before deciding whether to sell, buy or pause.

Practical checklist before you downsize your home

Use this as a planning guide.

1. Estimate your net sale proceeds

Consider what your home may sell for, what you still owe, and the costs of selling and buying.

2. Account for hidden and overlooked costs

Include items like stamp duty, strata fees, legal fees, building checks, removalists and loan setup fees.

3. Review local market timing and available stock

Look at what’s available in your preferred area and how this might affect your timeline.

4. Check your borrowing position early

A borrowing power estimate (and a conversation with a lender) can help you narrow your property search.

5. Consider broader implications (super, tax, longer term plans)

Downsizing and using proceeds (including potential super contributions) can be significant decisions. Check rules, compare loan options and rates and get independent support if needed.

Source: NAB

Reproduced with permission of National Australia Bank (‘NAB’). This article was originally published at https://business.nab.com.au/

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.