Downsizing home loan: bridging, super and the pension after 55
Downsizing means selling the family home and buying something smaller or cheaper, usually in or near retirement, and many downsizers buy the new home outright from the sale. Where it costs more than the sale nets, a downsizing home loan is assessed on retirement income such as super income streams and the Age Pension, and a bridging loan lets you buy before you sell. From 55 you can also put up to $300,000 each of the sale proceeds into super as a downsizer contribution, although the surplus can reduce the Age Pension.
- Many downsizers buy outright from the sale; where a loan is needed it is assessed on super income streams, investment and rental income and the Age Pension (Lagos Financial), with an exit strategy
- Buy before you sell with a bridging loan; carry a fixed-rate loan to the new home with portability to avoid break costs
- Downsizer super contribution: up to $300,000 per person from the sale, from age 55, outside the contribution caps; home owned 10 years, once in a lifetime, within 90 days of settlement (ATO, Lagos Financial)
- The home is exempt from the pension assets test; cash and super are not, so the surplus can reduce the Age Pension (ATO, Moneysmart)
- Costs add up: agent, conveyancing both sides, stamp duty unless a pensioner concession applies (Victoria: $750,000 or less), moving and any bridging interest (NAB)
WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees, or other loan amounts might result in a different comparison rate. Comparison rates are calculated on a secured loan of $150,000 over 25 years for home loans, a loan of $30,000 over 5 years for car and personal loans, and $50,000 over 5 years for equipment finance, unless the lender states another basis.
Do you need a loan to downsize?
Often not. Lagos Financial publishes that in many cases downsizers can purchase the new property outright from the proceeds of the sale, and a downsizer home loan is simply a home loan taken out when the smaller property costs more than the sale nets, or when you want to keep cash or super intact. NAB publishes the two things that decide the loan if you need one: your equity and LVR on the new home, which affect the options and whether LMI applies, and the buying and selling costs, which reduce the surplus. Decide the budget from the net sale proceeds after those costs, not the sale price.
How is a downsizer loan assessed?
Lagos Financial publishes the key difference from a standard home loan: at retirement age the lender relies on superannuation income streams, investment income, rental income and the Age Pension rather than wages. Canstar publishes that the Age Pension is accepted as ongoing income and that lenders want an exit strategy for a loan that runs past your working life; InfoChoice publishes that many cap eligibility around 80. The pensioner home loan guide lists what each income type is worth to a lender. The practical shape of most downsizer loans is small and short: a modest amount against a low LVR, on a term that the exit strategy supports, with repayments that a fixed income carries comfortably.
Sell first, or buy first?
| Order | How it is financed | Suits | Cost |
|---|---|---|---|
| Sell first, then buy | Cash from the sale, plus a loan only if the new home costs more | Downsizers who want certainty on the budget and no bridging interest | Possibly renting or staying with family between settlements |
| Buy first, then sell | A bridging loan secured on both properties until the sale settles | Buyers who have found the right home and can carry the peak debt for a few months | Interest on the combined debt for the bridging period; a deadline to sell |
| Simultaneous settlement with a ported loan | Portability moves the existing loan to the new property | Downsizers keeping a loan, especially on a fixed rate | No break costs; discharge, valuation and transfer fees |
The downsizer super contribution
The ATO publishes the rule: if you are 55 or older you may be able to contribute up to $300,000 from the proceeds of the sale or part sale of your home into your complying super fund as a downsizer contribution, and it does not count towards the concessional or non-concessional contribution caps. Lagos Financial publishes the conditions: you must be 55 or older when you make the contribution, the home must have been owned by you or your spouse for at least 10 years, you can make it once in your lifetime, and it must be made within 90 days of settlement. Each member of a couple can contribute, so $600,000 combined. The attraction is the tax rate on earnings inside super against your marginal rate outside it. The ATO adds two consequences: the contribution counts towards your total superannuation balance, which can affect other super entitlements, and towards your transfer balance cap when the money moves into a retirement-phase account. It recommends independent financial advice, and so do we.
Downsizing and the Age Pension
The family home is exempt from the pension assets test; the surplus from selling it is not. The ATO publishes that selling your home and making a downsizer contribution may affect income support payments such as the Age Pension, and Moneysmart devotes a section to how downsizing affects it. Cash in the bank is assessed under both the assets and income tests, and super is assessed once you reach pension age, so a downsizer who banks $400,000 can lose part or all of a pension they relied on. The timing of the contribution, the split between cash and super, and whether to spend some of the surplus on the new home all change the outcome, which is why Services Australia's calculators or a financial adviser belong in the plan before the contract is signed.
Stamp duty and the other costs
NAB publishes that buying and selling costs can add up. On the sale: agent commission and marketing, conveyancing, and any discharge or break costs on an existing loan. On the purchase: stamp duty, conveyancing, building and pest inspections, and moving. Victoria publishes a stamp duty concession for pensioner concession card holders buying a home to live in valued at $750,000 or less, and InfoChoice publishes that relaxed pension criteria and stamp duty exemptions exist for downsizers in some places; the stamp duty calculator lists each state's rules. Alternatives to moving exist too: NAB and Moneysmart both note that some people stay and adapt the home instead, and the reverse mortgage guide covers borrowing against it rather than selling. A broker prices the downsizer loan, the bridging option and the alternatives together; get matched with a licensed broker who works this kind of lending, and take financial advice on the super and pension side separately.
Moving in retirement
The loans, the timing and the calculators.
Downsizing FAQs
Can I get a 30 year mortgage at age 55 in Australia?
At what age is it most beneficial to downsize a house?
Do aged pensioners pay stamp duty when downsizing?
What is the downsizer super contribution?
Does downsizing affect the Age Pension?
Can I buy the new home before I sell the old one?
What are the costs of downsizing?
Downsize with the finance in the right order
Tell us what you are selling, what you are buying and whether you want to buy first, and we refer you to one licensed broker partner who structures the loan, the bridging and the timing around your retirement income. Free for borrowers, no obligation.