Beginner's Guide to Downsizing Your Home in Mosman

Downsizing usually means releasing equity from one property and buying another with cash left over.

Most downsizers in Mosman are moving from a family home to a smaller dwelling while freeing up funds for retirement, travel or helping adult children. The process involves selling your current property, purchasing a smaller one, and working out what to do with the difference. The mechanics are straightforward, but the finance decisions around how much to borrow, what loan structure to use, and how to manage the sale and purchase timing can shape your financial position for years.

Mosman's median house price sits well above the median apartment price, so the equity released in a typical downsize can be substantial. A downsizer selling a family home near Balmoral and purchasing an apartment closer to Military Road will often have several hundred thousand dollars left after settlement. How you structure the purchase, whether you carry any debt into retirement, and what loan features you prioritise will depend on your income, age, and what you plan to do with the released funds.

What loan amount makes sense when you have equity to spare?

You can purchase with cash, take out a small loan to keep funds liquid, or borrow more strategically depending on your circumstances. If you are still working and expect to pay down the loan within a few years, a variable rate loan with an offset account lets you park surplus cash and reduce interest without locking it away. If you are retired or semi-retired and want to minimise repayments, borrowing less or paying cash outright may make more sense.

Consider a downsizer selling in Mosman and purchasing an apartment with part of the proceeds. They have $400,000 available after selling but choose to borrow $200,000 and keep $200,000 in offset. The loan repayments are covered by their offset balance, so they pay little to no interest while retaining access to the full amount. That structure works if you want liquidity for renovations, helping family, or managing uneven income in early retirement.

If you plan to hold a mortgage into retirement, lenders will assess borrowing capacity based on your retirement income, including superannuation drawdowns, pensions, and any part-time work. Loan terms for retirees are typically shorter, and some lenders cap loan terms based on your age at application. Speaking with a broker before listing your property helps you understand what you can borrow and how long the loan term can run.

Does stamp duty apply when you downsize in NSW?

You will pay stamp duty on the purchase of your new home unless you qualify for a specific exemption, and no general downsizer exemption exists in NSW. Transfer duty is calculated on the purchase price using the standard residential rates. For a property valued at $1,200,000, duty is approximately $49,000. For a property at $800,000, duty is approximately $31,000. These are significant costs and should be factored into your budget early.

Pensioners may be eligible for a transfer duty exemption or concession when purchasing a new principal place of residence, provided they meet the criteria under the Duties Act 1997 (NSW). Income and asset tests apply, and the property must be occupied as your principal place of residence. If you qualify, the exemption can remove the duty liability entirely. Eligibility should be confirmed with Revenue NSW or your solicitor before exchanging contracts.

Downsizers also need to budget for conveyancing fees, building and pest inspections, and any strata report costs if purchasing an apartment. Legal fees for both the sale and purchase typically sit between $2,000 and $4,000 combined, depending on complexity.

Should you use a bridging loan or sell first?

If you find a property to buy before your current home sells, a bridging loan lets you settle the purchase without waiting for your sale to complete. The bridging loan is secured against your existing property and is repaid once that property settles. Bridging finance typically runs for six to twelve months and attracts a higher interest rate than a standard home loan, usually between 0.5 and 1.5 percentage points above the variable rate.

Bridging works when you need certainty on timing or when the property you want to buy will not wait. You will need to service both your new loan and the bridging loan during the overlap period, so lenders assess your capacity to carry both. Some lenders allow capitalised interest on the bridging portion, meaning interest is added to the loan balance rather than paid monthly. That can help manage cash flow if your income is limited before the sale settles.

Selling first is lower risk and avoids the cost of bridging, but it may require a longer settlement period on your sale or temporary rental accommodation between settlement dates. Your choice depends on how quickly you need to move and whether you have found the right property.

What loan features matter when you are downsizing?

An offset account is the most useful feature if you are holding surplus cash after the sale. Every dollar in the offset reduces the balance on which interest is calculated, so if you have a $300,000 loan and $300,000 in offset, you pay no interest. The funds remain accessible, which matters if you are planning to help children with a guarantor loan, fund healthcare costs, or manage irregular expenses in retirement.

A redraw facility lets you make extra repayments and withdraw them later, but access is not guaranteed and some lenders restrict redraw depending on loan performance. Offset is generally more reliable if you want ongoing access to your funds.

Portability can be relevant if you think you may move again within a few years. A portable loan allows you to transfer your existing loan to a new property without discharging and reapplying, saving on application fees and valuation costs. Not all lenders offer portability, and terms vary, so confirm this before settling on a loan product.

If you are keeping a mortgage into retirement and want rate certainty, a split loan lets you fix part of the balance and leave the rest variable. Fixed rates do not allow offset on the fixed portion, so you would typically fix the amount you plan to hold long-term and leave any offset-linked funds on the variable portion.

How does downsizing affect your tax position?

Your family home is exempt from capital gains tax when you sell, provided it has been your principal place of residence for the entire ownership period. If you used part of the home to produce income, such as renting out a room or running a business, a partial CGT liability may apply. Your accountant or conveyancer can confirm your position before settlement.

If you are over 55 and sell your home, you may be eligible to make a downsizer contribution of up to $300,000 per person into your superannuation fund, even if you exceed the usual contribution caps. The contribution does not count toward your concessional or non-concessional caps and does not require you to meet the work test. You must have owned the property for at least ten years, and the contribution must be made within 90 days of receiving the sale proceeds. This can be a useful way to boost your retirement savings while reducing your assessable assets for the age pension means test.

The downsizer contribution is available regardless of whether you purchase another property, so some people sell, move into a smaller home or rental, and contribute the proceeds to super. Others purchase a new property and still have enough left over to contribute. Your financial adviser can model how the contribution interacts with your pension entitlements and tax position.

What happens if your sale falls through after you have exchanged on a purchase?

If your sale does not settle and you have already exchanged contracts on a purchase, you will need bridging finance or another funding source to settle the purchase on time. Most lenders can arrange bridging quickly if you have sufficient equity, but the approval process is faster if you have discussed contingency funding before exchanging.

Some buyers include a subject-to-sale clause in their purchase contract, making the purchase conditional on their sale settling. Vendors in Mosman are less likely to accept a subject-to-sale clause in a strong market, but it can be negotiated depending on circumstances. Your solicitor can advise on whether this clause is appropriate and how to structure it.

Another option is to request a longer settlement period on your purchase, giving you more time to sell your existing property. Settlement periods in Mosman typically run between 30 and 90 days, but some vendors will agree to longer if it secures the sale.

Do you need pre-approval before listing your property?

Pre-approval gives you a clear borrowing limit and confirms your loan structure before you start looking for a property to buy. It also shortens the approval timeline once you find something, which can matter in a competitive market. Lenders will assess your income, existing assets, and any outstanding debt, then issue conditional approval valid for three to six months.

If you are recently retired or moving to part-time work, pre-approval confirms how lenders will assess your reduced income and whether your superannuation drawdown will be accepted as serviceability income. Some lenders treat drawdowns more favourably than others, so comparing your options through a broker can increase your borrowing capacity or improve your loan terms.

Pre-approval does not lock you into a loan product, and you can withdraw or reapply with a different lender if your circumstances change. It does, however, give you confidence on price range and lets you move quickly when the right property comes up.

Call one of our team or book an appointment at a time that works for you. We work with downsizers in Mosman regularly and can walk through loan structures, timing, and lender options that match where you are now and where you are heading.

Frequently Asked Questions