Downsizing Off-the-Plan: How to Use Equity, Time Your Move and Sleep at Night

Most downsizers I meet don’t get into trouble because they picked a bad apartment. They get squeezed because they signed an off‑the‑plan contract before they had a clear finance and timing plan.

Downsizing into an off‑the‑plan apartment means using your existing home equity to buy a not‑yet‑built unit that settles in 12–36 months. The core challenge is juggling three things at once: (1) safe equity release, (2) interim finance while you still own your current home, and (3) timing your sale, move and super contributions.

What I tell my clients: treat this like a project with phases, not a single leap. Once we map the phases, the decision usually becomes obvious within a week.

1. Start with the real goal: lifestyle, not just a smaller mortgage

A couple I worked with in their early 60s wanted to downsize from a freestanding home in the inner west into an off‑the‑plan apartment on the light rail. They were fixated on the price list. The mistake I see most is starting with the brochure instead of a lifestyle and cashflow brief.

Define “enough” before you look at floorplans

For most downsizers and retirees, the real objectives are:

1. A low‑maintenance home in the right location.
2. Manageable (or ideally nil) debt by the time full retirement hits.
3. Enough liquid cash and super to handle 20–30 years of living costs.

That means your first exercise isn’t, “Can I get approved for this apartment?” It’s, “What post‑move balance sheet and cashflow actually make sense?”

Simple framework:

• Aim for 60–70% total LVR after you’ve sold and moved (so you’ve still got a buffer if values wobble).
• Keep housing costs under ~30–35% of net income (including levies, rates and insurance).
• Have at least 1–2 years of base living costs in cash and offset once the dust settles.

If the off‑the‑plan you’re eyeing forces you outside those ranges, the issue isn’t the bank – it’s the plan.

For a broader view of how downsizing fits against reverse mortgages and lines of credit, see /insights/reverse-mortgage-vs-line-of-credit-vs-downsizing-australia.

2. Using equity to downsize off-the-plan – how much is “safe”?

"Using equity to downsize off the plan" sounds neat, but there are three separate questions:

1. How much equity can you release now to pay the deposit or progress payments?
2. How much total debt can you comfortably carry during the build while you still own your current home?
3. Where do you want your debt to land after you’ve sold and settled the new place?

Step 1: Map your equity like a lender (and a tax agent)

Say your current home is worth $2.0m with $200k owing.

• At 60% LVR, a lender is comfortable up to $1.2m.
• You already owe $200k, so theoretical extra capacity is $1.0m.

On paper you could pull $1.0m out. In real life, we rarely go that far. In my equity safety work with clients (and in /insights/equity-release-renovations-investments-safety-buffers-broker-plans), I generally cap practical equity release at 60–70% LVR with a strong cash buffer.

In our $2.0m example, that suggests:

• Target LVR during the build: ≤65% → total loans of $1.3m.
• Existing $200k loan → usable equity ~ $1.1m, but we’d only draw what the project actually needs.

Step 2: Stress-test cashflow at “APRA plus” buffers

APRA requires lenders to test your repayments at least 3% above the rate you actually get. I like to run numbers at 3–3.5% above to allow for further RBA moves.

Example: you end up with $1.2m total debt during the build (old home + new off‑the‑plan loan) at 6.5% p.a. P&I (indicative only).

• Monthly repayment at 6.5%, 25 years: about $8,100.
• Stress-tested at 9.5%: about $10,600.

If that higher figure doesn’t comfortably fit under 30–35% of your net income, you’re too stretched – even if a bank system says “approved”.

For investors downsizing from an investment property, the same safe‑equity principles from /insights/how-much-equity-safely-release-investment-property-australia apply: conservative LVRs, buffers in offset, and clean splits by purpose so interest deductibility is clear.

Step 3: Keep equity splits clean

Loan purpose, not the securing property, drives tax outcomes. For many downsizers there is a mix of purposes:

• New apartment (non‑deductible home debt).
• Possibly an investment top‑up or future renovation.

We’ll often split lending like this:

• Split A: Current home – existing loan.
• Split B: Equity top‑up used for new apartment deposit.
• Split C: (If relevant) Investment purposes – future deductible debt.

This makes it easier to uncross and tidy loans later, as discussed in detail in my uncrossing guide.