There can be a number of reasons for downsizing your home, with one of the most common being simply to live somewhere more manageable and user friendly.
Depending on the property, a smaller home can mean less upkeep, allowing more quality time for family, friends and leisure activities. It can also mean less ongoing costs for maintenance and utilities, such as house painting, heating and cooling, watering lawns and gardens and, in some cases, council rates. For some, downsizing can also provide surplus funds that can be put toward future lifestyle and wellbeing requirements.
However, while downsizing can bring many benefits, a number of costs and possible pitfalls can be involved.
Financially, the cost can be significant and can include real estate agent fees, moving costs, property inspections, stamp duty (this amount can vary according to the applicable state/territory), costs for preparing the existing home for sale, and conveyancing costs. If applicable, borrowing costs such as loan establishment and service fees, mortgage registration fees and interest also apply. If the new property is in a more desirable area, is of higher quality or requires work to make it suitable, downsizing may not necessarily produce surplus funds and could even prove too costly for the benefits it may bring.
Moving house is also considered one of the more stressful life events and depending on the location and personal requirements it does not necessarily mean a better lifestyle particularly if family and important services and amenities, such as health professionals, shops and transport, are more difficult to access.
For those receiving Government Income Support (GIS), such as an Age Pension, certain rules apply with regard to the means test that can impact entitlements. GIS recipients who sell their home with the intention of purchasing another have up to 12 months to purchase the new property before the sale proceeds are counted under the Assets Test. However, sale proceeds are assessed along with other financial assets under the Income Test, as those funds could potentially be earning interest until the purchase of the new property occurs. For more information visit. www.humanservices.gov.au.
As with facing any major decision, it is vital to consider the pros and cons according to your future health and lifestyle needs. Sometimes making adjustments to your existing home may be a more viable way of addressing your needs. For those who do not have the financial resources to do so, accessing the equity in your existing home may be possible; however, costs and restrictions apply and, depending on the circumstances, may limit future choices. For some, family members may be in a position to assist or provide a solution.
Whatever you choose, careful planning and robust discussions are vital to ensure that all parties are fully aware of the consequences.
Craig Hall has worked in the financial services industry for approximately 25 years, including 11 years of providing independent financial information to consumers.
Please note that the information in this article does not constitute or imply financial advice. It is recommended that you seek professional financial advice and/or seek clarification from any relevant government department or financial services provider before making financial decisions.