Upsizing or Downsizing Your Home
We readily change our motor vehicles to fit our requirements, but we do struggle to do the same with our homes. After all it is a big decision but it can be quite liberating both emotionally and financially.
The arguments are the same for renovating so once again we need to look at the costs of selling and buying another home using for example $500,000;
- selling agents fees – typically 3% or $15,000 ,
- stamp duty and other government charges – allow at least 4% or $20,000
- conveyancing costs typically $1200 plus insurance and pro-rata charges already paid by seller- such as council rates etc
- removalist charges
As you can see it would not be unusual to cost $35,000 and that does not include any additional purchase price especially if you are upsizing. Keep in mind if you need to refinance you may be up for loan exit fees and/or new establishment fees. Just because your existing loan says it is “portable” don’t expect this to work, as it rarely does,
The Pay Off
Upsizing is usually a response to a growing family or other special physical needs and of course a bigger home in the same suburb is usually going to cost more. However as long as you do your homework and don’t over capitalise – a bigger more expensive home’s capital growth will usually be larger simply by virtue of it being on a larger cost base. You can think of this as part of your long term financial strategy with a clear intention of downsizing once the time is right.
Downsizing usually provides you with either a cash benefit and/or, a lifestyle benefit and/or a travel reduction benefit.
If you use upsizing and downsizing as part of your long term financial plan, it can be very beneficial
What do lenders expect
Obviously you have to be able to service the new debt and don’t forget that means employment must be stable which can be an issue if you are relocating further a field.
Inner city high density properties can be problematic especially small studio style apartments. Likewise rural locations can be an issue, if your new home town has a population of less than 10,000 finance can be become tricky – but it all depends on the equity position.
You need to decide on whether to keep your existing property and rent it out – that rental will contribute to your income and so can assist with servicing a larger debt. However there may be taxation implications that require professional advice. If on the other hand you decide to sell the existing property you must decide whether you will sell first and then purchase – this then requires you to arrange alternate accommodation in the interim. Or you might opt for a bridging loan that allows you to buy now and sell later – but please talk to us first as there are only a few good bridging options and lots of bad ones.
Click here to go to our express inquiry form or call 1300 137 586. We’re confident you’ll appreciate the Peach Home Loans service!