Why Public Servants Are Choosing to Downsize
Downsizing your home might not be the first thing that comes to mind when you think about property decisions, but for many public servants, it's becoming an increasingly attractive option. Whether you're looking to reduce maintenance costs, build equity for retirement, or simply want a more manageable property, downsizing can offer significant financial and lifestyle advantages.
As property values across Australia continue to shift, many homeowners are discovering that a smaller property doesn't mean compromising on quality of life. In fact, downsizing can improve your financial stability while giving you access to funds for other priorities, like travel, investments, or helping family members achieve home ownership.
Understanding Your Financial Position Before Downsizing
Before you start looking at smaller properties, it's worth taking stock of your current situation. A loan health check can help you understand exactly where you stand with your existing mortgage and how much equity you've built up in your current home.
Your loan to value ratio (LVR) plays a crucial role here. If you've owned your property for several years and made regular principal and interest repayments, you've likely built substantial equity. This equity becomes your working capital when downsizing, potentially allowing you to:
- Purchase your new property with a smaller loan amount
- Access lower rates due to a reduced LVR
- Avoid Lenders Mortgage Insurance (LMI) entirely
- Secure better home loan features and benefits
Home Loan Options When Downsizing
When buying your next home, you'll want to explore the full range of home loan products available. Public servants often have access to special home loan packages with rate discounts and waived fees that aren't available to the general public.
Key home loan options to consider include:
Variable Rate Home Loans: These offer flexibility with interest rates that move with the market. Many variable home loan rates include features like an offset account or linked offset, which can reduce the interest you pay while maintaining access to your funds.
Fixed Interest Rate Home Loans: Lock in your interest rate for a set period, providing certainty for calculating home loan repayments. This can be particularly valuable if you're on a fixed income or planning your retirement budget.
Split Loan Options: Combine the security of a fixed rate with the flexibility of a variable interest rate. A split loan lets you hedge your bets, protecting part of your loan while maintaining access to features like extra repayments on the variable portion.
Improving Your Borrowing Capacity Through Downsizing
One significant advantage of downsizing is how it can improve borrowing capacity for other financial goals. When you purchase a smaller property with lower repayments, you free up cash flow that can be redirected toward:
- Building an investment property portfolio
- Supporting adult children to invest in property
- Establishing a mortgage offset account to reduce interest
- Creating a buffer for retirement
If you're planning to keep your current property as an investment while downsizing to a new owner occupied home loan, this strategy can accelerate wealth building. The rental income from your larger property might cover most or all of its mortgage while you enjoy need lower repayments on your new, smaller home.
Ready to get started?
Book a chat with a Finance and Mortgage Brokers at Public Home Loans today.
Getting Home Loan Pre-approval for Your Downsized Property
Securing home loan pre-approval before you start property hunting gives you a clear understanding of your budget and makes you a more attractive buyer. For public servants, pre-approval often comes with additional benefits like interest rate discounts that reflect your stable employment.
When you apply for a home loan, lenders will assess:
- Your current income and employment stability
- Existing debts and financial commitments
- The equity in your current property
- Your intended loan amount and repayment structure
Public servants typically have an advantage here due to secure employment, which lenders view favourably when assessing home loan applications.
Comparing Rates and Finding the Right Lender
It's worth taking time to compare rates and access home loan options from banks and lenders across Australia. As a public servant, you may be eligible for:
- Lower interest rates than standard offerings
- Waived application fees
- Reduced or waived LMI, even at higher LVRs
- Enhanced home loan features like portable loan options
A portable loan can be particularly valuable when downsizing, as it allows you to transfer your existing loan to your new property without breaking costs or penalty fees. This is especially relevant if you're currently on a favourable fixed interest rate.
Structuring Your New Home Loan
How you structure your home loan can significantly impact your financial outcomes. Consider these options:
Interest Only vs Principal and Interest: While interest only loans reduce immediate repayments, principal and interest structures help you build equity faster in your new property. For downsizers looking to secure their financial future, principal and interest repayments often make more sense.
Offset Account Benefits: A linked offset or mortgage offset account acts like a savings account that reduces the interest charged on your home loan. Any funds in your offset account reduce your loan balance for interest calculation purposes, potentially saving thousands over the life of your loan.
Understanding Current Home Loan Rates: Interest rates fluctuate, so timing your refinance or new home loan application can impact your long-term costs. Working with a mortgage broker who specialises in home loans for public servants ensures you access the lowest rates available to your employment sector.
Taking the Next Step
Downsizing your home represents more than just a property transaction - it's a strategic financial decision that can reshape your lifestyle and retirement plans. Whether you're looking to reduce maintenance, unlock equity, or position yourself for future investments, the right home loan structure makes all the difference.
At Public Home Loans, we understand the unique circumstances of public sector employees. We work with you to compare home loan packages, access exclusive rate discounts, and structure your loan to support your long-term goals. Our team has access to home loan products from banks and lenders across Australia, ensuring you get the right solution for your situation.
Call one of our team or book an appointment at a time that works for you. Let's discuss how downsizing could improve your financial position and help you achieve the lifestyle you want.
