Downsizing or Sea-changing: How to Make the Best of Current Home Loan Finance

Are you one of the two-thirds of Australian retirees that have one spare bedroom in their home? Perhaps you’ve thought about downsizing to a smaller, more manageable home; or you want to take the plunge and make a “seachange” – moving somewhere regional and near the water. (Or a “treechange”, where you move into the country or more forested areas.)

With interest rates rising and inflation biting, many retirees may be shying away from downsizing or seachanging. The flipside is that during times of rising interest rates, home prices often fall. Timing the market can be tricky – so how can you make the most of current home loan finance to make your downsize or seachange?

What is downsizing? What is a seachange?

In the process of downsizing, you move out of your family home, which is now considered an “empty nest,” and into a smaller house. This new home is typically situated in a more desirable area – perhaps where you and your partner have always dreamt of spending your autumn years.

In this process, many people make a “seachange” or a “treechange” – moving to a new location near the beach/water or out into a regional, leafier area. The terms are not interchangeable – some retirees may treechange without downsizing; or downsize without seachanging. In some cases, the “seachange” may end up costing more than the equity in one’s current home, especially if you want to live somewhere upmarket.

On the other end of the spectrum, some places in Australia can give you a beachfront (or close enough to) home for a little over $100,000.

How to use home loan refinancing

If you still have a home loan outstanding and high equity, you may be able to make a seachange or a downsize of your property by selling your old property for a higher price than what’s owed and closing out the mortgage while using the proceeds of the sale to purchase your property outright.

As discussed earlier, it may be easier said than done – especially for some of the more luxe properties out there.

What you can do is make use of home loan refinance. That means finding a new lender to take on your mortgage, ideally at a better rate or terms. With most, if not all ultra-low fixed rate loan terms having expired by now, locking in a competitive rate to beat any potential RBA cash rate rise should be hot on your radar. You can refinance at your current bank or lender – or you can use a broker to find a loan that’s more favourable for you and your situation.

If you are thinking of downsizing, you can also contribute proceeds of your sale (up to $300,000) and put it toward your superannuation. The eligibility criteria include being 60 years of age or older and the home you sell must be exempt from capital gains tax. For more information, visit the ATO.

Remember, the information presented here is general in nature and not a substitute for professional financial advice.