Buying your Next home

There are many reasons why you might want to upgrade your home.

The family is growing and you need more space.
It’s time for a change of scenery.
You need to move for work purposes.
You have out grown your apartment.
Or your keen to trade up for a better home in a better location.

No matter what your reason is for buying your next home, it is important to consider the financial aspects.

There are many factors to consider when financing your first property purchase. However when it comes to purchasing your second property it becomes a little more challenging on how to structure the loans

Should I sell before I buy?

Unfortunately this is rarely the case and most next home buyers will struggle with the decision to buy or sell first.

Selling your current home can put you in stronger financial position, establish a realistic budget and provide you with the time to make property offers without rushing. However this should be weighed up against the expense of interim accommodation until you find a new property and the expense of moving twice.

To help avoid the double move

It may be possible to negotiate a longer settlement on the purchase of you new home, while you sell your current home.
Or organise to lease your home back from the new owner, giving you time to find your next property.

Loan Portability and Bridging Loan Finance

Ideally you want to be able to settle on purchase and sale as close together as possible. Some lenders offer loan portability, allowing you to take your existing loan with you to the new property – reducing your refinance costs. However if you have found your new dream home and have not sold your current home, then a bridging loan will help cover any time gap between the current property sale and new property purchase.

Loan Portability

Home loan portability is a loan option offered by some lenders, that allows you to keep the same loan and facilities (ATM card, online banking etc) whilst avoiding the costs associated with refinancing. Essentially the loan remains the same, however the finance is secured against the new property. The amount financed may increase or decrease depending on the equity in your current home and the purchase price of the new property.

Bridging Loan

A Bridging loan, is a short term loan usually 6 to 12 months, that makes it possible to purchase or construct a new home prior to selling your current home. Talk to our mortgage specialist as there are different types of bridging finance available depending on which lender you choose, the security for the finance and the repayment options.

Single Loan – Bridging Finance

The Lender uses both properties as security, with a single mortgage covering the existing property and the new property. Different lenders have different repayment requirements during the Peak Debt period.

Dual Loan – Bridging Finance

The mortgage on your existing property is retained and a second mortgage is secured against the new property. In this scenario repayments are required on both mortgages, so it is important that you do not enter this kind of arrangement unless you can support payments on both loans. Once you sell your current home, proceeds from the sale are used to pay out the original lender mortgage and surplus funds are used to reduce the mortgage on the new property.

Bridging loans allow you to move into your new home straight away. However it is important to be realistic about the sale price of your existing property and how long it may take to sell in the current market, as well as your ability to meet your bridging finance obligations.

If you are unsure of your ability to make repayments on a bridging loan, then talk our mortgage specialist and they will advise you the appropriate structure to suit your financial circumstances.
Call 1300 222 667

Keeping my first home

Turning your current home into an investment.

So your buying your next home, but you want to keep your first home as an investment property. There are many reasons why you might want to keep your current home, as a holiday home, a second home for your children or the option of turning your existing home into a rental investment property.

The amount you can borrow will depend on Your ability to service the current loan plus the new loan. The bank valuation on both properties, compared to your total loan amount. The equity in your current property.The rental income from the investment property. If you are using a protected asset, like your next owner occupied property as security for the investment property, it is important that your next home mortgage is structured correctly, so that you are protected by the Uniform Consumer Credit Code (UCCC).

Buying your next home FAQs

Can I purchase my next home before I sell my existing home?

Yes – However there are pros and cons on whether to buy first or sell first. If you decide to buy first, you will need bridging finance before you purchase your next property.

You can borrow up to 80% of your peak debt (your current mortgage plus the purchase price of the new property).

Are there different types of bridging loans?

Yes – The structure of the finance will vary from lender to lender and often the interest rate can be higher. Before you enter a bridging finance agreement check with your mortgage broker about different bridging loan options, your personal finances and your ability to service two mortgages short term.

If I have bridging finance do I still need a deposit?

Yes – Bridging finance is not covered by Lenders Mortgage Insurance (LMI), so you will need at least 20% of the peak debt as a deposit in order to purchase your next home.

If you have equity in your current home and your mortgage has redraw facility, you can use your redraw equity as your deposit. However if you do not have sufficient funds for a cash deposit – then talk to your ACA mortgage broker about alternate deposit options including deposit bonds.

How long is a bridging loan term?

If you are purchasing an existing property typically the bridging loan term will be no more than 6 months. If you are purchasing a new home the term will be no more than 12 months. If there are extenuating circumstance and you are unable to sell you existing home within the time limit, then it may be possible to arrange a new agreement.

In most states the typical period for a property settlement is around 6 weeks.

Do I have to make repayments during the bridging period?

It will depend on how the bridging loan is structured with your lender. Speak to your mortgage broker about the repayment options available when setting up bridging finance. Options include interest only repayments that are capitalised on your peak period, or standard principal and interest repayments which will help reduce the total loan amount and the additional interest charged.

Can a bridging loan be used to cover construction costs?

Most lenders will not approve a bridging loan to cover the construction cost of a new home.

However a few lenders will approve a bridging loan if construction is completed within 6 months of the first progress payment. Typically the construction of a new house ranges from 12 to 16 weeks. You will have to make repayments on both your current mortgage plus the new mortgage, however you will have 12 months to sell your current home.

What are the alternatives to bridging loans ?

In most cases, next home buyers are financial better off if the current home is sold prior to purchase your next home.

It may be possible to negotiate a longer settlement on the purchase of you new home, while you sell your current home. Or organise to lease your home back from the new owner, giving you time to find your next property.

First Home Buyers