Navigating the golden years sees many people considering a move. The kids have flown the nest, and the upkeep of a larger home may seem like an unnecessary burden. Downsizing becomes an enticing prospect, offering not just a smaller space but a lifestyle often tailored to the unique needs of those in their older years.
If you’re considering this transition, here’s 4 ways you could seamlessly move into this new phase of life.
1. Bridging finance to buy a new home
Bridging finance can be a great financial solution for people looking to downsize their homes and purchase imminently, facilitating a seamless transition between selling an existing property and purchasing a new, more suitable one. When downsizing, homeowners often face a timing misalignment between the sale of their current home and the acquisition of a new property. Bridging finance addresses this gap by providing interim funds, allowing individuals to secure their new home before finalising the sale of their existing property.
Typically, the loan covers the purchase price of the new property, with interest payments rolled into the loan amount during the bridging period. Once the initial property is sold, the homeowner repays the bridging loan, and any remaining funds are then used to settle the mortgage on the downsized home. This offers flexibility and convenience, ensuring a smooth downsizing process for those seeking a change in their housing needs.
The benefits:
- Continue living in your current home.
- Avoid rental costs chipping away at equity.
- Stability – no need for family upheaval or additional rental outlay. You only need to move once, streamlining the downsizing process.
Considerations:
- This is not the cheapest form of borrowing as you’re paying a premium for the convenience and certainty, although some borrowers consider this somewhat balanced out by there being no requirement to move twice, avoiding these additional costs.
2. Selling and renting to explore new horizons
Downsizing doesn’t always mean staying in the same neighbourhood. For many it is an opportunity to try a new area, so selling and renting can be an exciting option. This allows you to experience a different community and lifestyle before committing to a permanent move. Renting provides flexibility and the freedom to explore, making it an ideal choice for those who crave change without the long-term commitment.
The benefits:
- Try an area before making a financial investment to live there
- Certainty that your property has sold before you buy – in some areas large homes may be harder to sell.
Considerations:
- If house prices increase while you’re out of the property market, it may be harder to get back in as the value of your equity decreases. Conversely, the market may fall while renting which means you can buy back in at a lower price. Any time ‘out of the market’ brings market movements into play, either positive or negative so it is a consideration either way.
3. Building a new home
For those opting to build a new, smaller home tailored to their specific needs, special loans can make the financial aspect more manageable. For example, Resolve Home Loans offer a loan product for those looking to downsize through new construction. Products of this nature bridge the gap between homes, ensuring a smooth transition, and use the equity from the existing home, eliminating the need for a second loan, covering associated fees and interest costs during the process.
The benefits
- Minimal disruptions – enjoy living in your current home while the construction of your dream dwelling is underway.
- Avoid rental costs eating into your savings
- Financial streamlining – Capitalised interest repayments mean homeowners aren’t burdened by two loans simultaneously.
Considerations:
- As with bridging finance, there is a premium for convenience and certainty.
4. Subdivide land on your existing block, and build a home to sell or rent
This can be a strategic financial move for those individuals seeking to secure a stable income or lump sum in retirement if their land title and council zooming permit. This approach allows homeowners to capitalise on the demand for housing if they live in an area with a shortage of housing (which is almost every corner of Australia!). There is also then the option to move into the new smaller dwelling and sell or rent the original home.
The benefits
- Many older Australians want to play an active role in managing and growing their wealth.
- This also provides an income or, upon sale, a profit from the cost of construction versus the sale price.
- Living on-site gives homeowners control over the property development process.
- For many staying close to, or in the family home can give a sense of security and continuity.
- Many finance options are available to those wanting to consider this route.
Considerations:
- Building a home and living on-site is not for everyone. As well as the disruption while building, the building process is time-consuming and requires close management.
For those empty nesters who have been contemplating a downsized lifestyle but hesitated due to financial concerns, these flexible financing options could unlock the door to your next chapter. Talk to a broker today and find out if these options could be for you!