Owner Occupied loans are the bread and butter of the mortgage business and yet there is still a lot of variation in lender’s offerings and so much to think about. If you are a first home buyer things are quite different so maybe you should get specific first home buyer information here.
We readily change our motor vehicles to fit our requirements, but we do struggle to do the same with our homes. After all your home is full of memories so it is a big decision but it can be quite liberating both emotionally and financially.
First 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. Today age becomes an issue especially for over 55’s a you have to repay the debt before retirement or show that you have the resources to do so.
Downsizing to an inner city high density property 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 your 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 get advce first as there are only a few good bridging options and lots of bad ones.