How to assess the impact of borrowing to build a home.
Laurie has plans to build a home, and wants to know how a loan and possible rent will affect his Age Pension.
I’m looking to get a loan to buy my next house but I will still own my present residence for a time while the new one is being built. I’m looking at renting out the new house over the short term while the old house is decluttered and then sold. This could take several months. At what point does this affect my Age Pension? Or, am I better off moving directly into the new home and then selling the old?
A. As soon as you take ownership of the secondary asset, be it a parcel of land or a fully built home, this will be considered an asset and will be assessed according to the assets test. Centrelink explains that the assets test counts any real estate you own, although not your principal home. This includes property you:
- rent out, even when not getting rent
- let someone live in for free
- leave vacant
- live in when you’re not at your principal home.
However, any loan you owe on the property can be deducted from your total assets.
Similarly, as explained, if you rent out your property, any income you earn will be assessed, although there are certain deductions you can claim in order to reduce the assessed amount.
Centrelink says you can claim:
- loan interest payments
- costs to maintain the property.
But you can’t claim
- capital depreciation
- special building write off
- costs to build
- costs of borrowing money such as loan establishment fees.
Before making any financial decision, you should seek qualified advice. You may also wish to speak to a Centrelink Financial Information Service officer.
If you have a Centrelink question, send it to [email protected] and we’ll do our best to answer it, or find someone who can.
Disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.
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