March 04, 2024 by Alexander Hamid
What are the finance options for buying my next home?
Upgrading to your next property can come with a surprising variety of funding options.
Ready to take another step up the property ladder? Let’s check some of the strategies available for financing an upgrade to your next home.
Bridging loans
In a perfect world we’d exactly time the handover of our old home with the settlement of a new place.
But of course, things don’t always work out that way.
The good news is that you don’t have to let timing hold you back. A bridging loan can cover the gap.
Bridging loans offer a funding bridge when you’ve found a new home but haven’t sold your old home. Essentially bridging loans cover both the existing and the new debt. So they apply even if the sale proceeds of your current home are required for your next home purchase.
Deposit bond
If you’ve found a home you love but don’t have the cash to secure the deposit, a ‘deposit bond’ might be for you.
A deposit bond can be used as an alternative to paying a cash deposit out of your own pocket. And they may work out cheaper than a bridging loan.
In simple terms, the bond provider (usually a bank or insurance company) gives the vendor (seller) a guarantee that the deposit will be paid. You then pay the full purchase amount on the new home once the cash becomes available. The bond provider will charge a fee – typically worth about 1.2-1.5% of the total purchase price according to Canstar.
Loan portability and top ups
Many home loans offer ‘portability’ – the option to take your old home loan with you when you move.
Sounds good, right?
The catch is that buying a new home is always a cue to check if your old loan is still the right fit for you. After all, you wouldn’t take the stove from your old kitchen to the new one because it’s unlikely to be an ideal match.
Similarly, a loan top up means asking your current lender to add a bit extra to your mortgage to cover the purchase of the new property. It can seem like a simple solution. But the same issue applies. You could be left paying a higher than necessary rate, and still not have the loan features or flexibility to match your new lifestyle.
Refinancing
Refinancing is the process of replacing your old loan with a new one. And when it comes to upgrading to a next home, it makes good financial sense to check out the mortgage market to see if you could get a better deal (hot tip, you probably will).
Reserve Bank data shows that many lenders save their best deals for new customers. So sticking with your old lender can see you stuck with a uncompetitive rate. Who wants to pay loyalty tax?
Keeping your current home as an investment property
Some home owners choose to build a property portfolio by holding onto each home as they climb the property ladder, and renting it out as an investment property.
This strategy can be achieved by using the equity in one home to buy the next place. If you currently own an apartment but you want to move to a house, it might make sense to keep the unit and turn it into a rental investment.
This approach calls for expert home loan advice. The way your loan is structured can play a key role in the success of your budding property portfolio.
We’ll help you sort through the options
With so many options available to purchase your next home, it’s important to make the choice that’s right for you.
Call me today for tailored advice on the strategy – and loan – that can help you make the most of upgrading to your next home.
