Looking to upgrade, downsize or just relocate?

Taking the time to reflect on your personal goals is important to frame how you want to manage your finances.

    • Upgrading is the situation where you sell your existing home and purchase a more expensive property to live in, whether it’s a bigger property, in a better location or both.
    • Downsizing refers to the opposite of upgrading, where your next home is a smaller (and usually cheaper) property. It is often used in the context of retirement, or for people whose kids have grown up and moved out (“empty nesters”).
    • Relocation simply refers to a geographic change, where you may be moving suburbs, cities, states or countries.

With these in mind, there are a couple of different things you can do with your current mortgage, such as refinancing to change loan products or “porting” your loan to the new property.

Alternatively, you could keep it simple and sell your current home, using the proceeds to clear out your current mortgage, and then taking out a new one for the next home.

Other people may consider keeping their current home and turning it into an investment property. 

Whichever path you end up going down, it is important to prepare a budget in order to work out the following:

    1. Have you researched the value of your current home? How much of a profit (or loss) would you expect to make from its sale, including after the real estate fees and commission to sell the property?
    2. If you intend to rent out your current home, how attractive would it be to a tenant and how much would you expect to rent it out for?
    3. What’s your current borrowing capacity?
    4. What additional outgoings might you incur by upgrading to a larger house?
    5. Do you intend to sell your home first before buying the next, or vice versa?

 

Buying before selling and bridging finance

Why wait to sell your current home?

Whether to sell your current home first, or wait until you’ve found your next home, depends on a few factors:

    • Where vendors have stronger bargaining power (i.e. a seller’s market), you would expect to be able to sell your current property fairly quickly, but take a little longer to find your next home to purchase. In this case you would likely consider obtaining bridging finance, discussed further below.
    • In contrast, in a buyer’s market, the sale of your current home may be more difficult. 
    • If you sell your home first, you have to think about finding temporary housing until you find your next property, moving costs, and potentially storage costs for furniture and other belongings that don’t fit in your temporary rental. Once you find that property, you then need to think about another set of moving costs to transfer everything and everyone into the new home.
    • However, selling your home also gives you certainty about unlocked equity and possible capital gains (i.e. money that you have to spend on your next purchase).

Bridging finance refers to a short-term loan that is taken out to fund the purchase of your next home until you are able to sell your current home. The amount of this bridging loan represents the equity of your current home and you are charged interest on this bridging period (6 to 12 months, depending on whether your next home is a new or existing property).