Stress-free transition to your new home

Stress-free transition to your new home

Buying a new home is one of the most stressful things you can do. Doing it while trying to sell your current home at the same time amplifies the stress – and the risk.

“One of the things I try to encourage my clients not to do is to buy the home of their dreams and then find that they can’t sell their current home,” says financial planner Deborah Kent, owner of Integra Financial Services.

One of Kent’s clients, who was close to retirement, found out the hard way what can go wrong when he bought a new home first – and then had to wait for two years before selling his existing home. “In the meantime, servicing both mortgages was eating into his retirement fund,” Kent says.

What else can go wrong and how can you make selling one home and buying the next as stress-free as possible?

Selling first

Selling your current home first means you know exactly how much money you have for your next purchase, and you’re less likely to over-spend on the new home when you have an exact budget.

However, buying your next home may take longer than expected and you may be forced to rent for a while. In addition to rental costs, that would mean two moves, double the moving costs and double the packing and unpacking labour. Nevertheless, this is the less risky option, according to Kent.

“You should at least talk to your real estate agent first to get an indication of how easy it will be to sell and to get a sense of the price of your property before you start looking,” she says.

Buying first

The biggest risk when you buy before selling, as discovered by Kent’s almost-retired client, is not being able to sell your existing home quickly. This leaves you open to unexpected fluctuations in the market.

Kent advises that you prepare your home for sale as soon as you begin considering your next purchase – declutter all rooms and make any minor renovations required, including painting. This will make it more attractive to buyers and help you sell quickly.

Bridging finance versus mortgage portability

Financially, you have two options when selling and buying so you need to carefully research the alternatives before you commit.

Bridging finance allows you to buy your new home before you sell. Lenders generally offer two types of bridging finance: where both properties are combined into one home loan and you have six to 12 months (the bridging period) to sell your current home; or a second home loan that covers the purchase of the new home and is paid off in full once you sell your current home.

Another thing to consider is that bridging finance is generally interest-only repayments, so the principal on your loan will creep upwards the longer you take to sell.

Another option is to take your existing home loan with you to the new home with the help of a mortgage portability feature – to do this, you must sell first or both properties must settle on the same day. If this is possible, mortgage portability can save you money compared to bridging finance because you avoid paying interest on two properties. It can also save you the cost of set-up fees for a new mortgage – not to mention the hassle of having to apply for a new one. When comparing home loans check the loan offers a mortgage portability feature or talk to your lender.

Both bridging finance and mortgage portability can carry fees – as always, it’s important to do your research and compare your options.

 

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Learn more about home loans

What do mortgage brokers do?

Mortgage brokers are finance professionals who help borrowers organise home loans with lenders. As such, they act as middlemen between borrowers and lenders.

While bank staff recommend home loan products only from their own employer, brokers are independent, so they can recommend products from a range of institutions.

Brokers need to be accredited with a particular lender to be able to work with that lender. A typical broker will be accredited with anywhere from 10 to 30 lenders – the big four banks, as well as a range of smaller banks, credit unions and non-bank lenders.

As a general rule, brokers don’t charge consumers for their services; instead, they receive commissions from lenders whenever they place a borrower with that institution.

Mortgage Calculator, Deposit

The proportion you have already saved to go towards your home. 

Mortgage Calculator, Repayment Frequency

How often you wish to pay back your lender. 

Who offers 40 year mortgages?

Home loans spanning 40 years are offered by select lenders, though the loan period is much longer than a standard 30-year home loan. You're more likely to find a maximum of 35 years, such as is the case with Teacher’s Mutual Bank

Currently, 40 year home loan lenders in Australia include AlphaBeta Money, BCU, G&C Mutual Bank, Pepper, and Sydney Mutual Bank.

Even though these lengthier loans 35 to 40 year loans do exist on the market, they are not overwhelmingly popular, as the extra interest you pay compared to a 30-year loan can be over $100,000 or more.

Mortgage Calculator, Loan Results

These are the loans that may be suitable, based on your pre-selected criteria. 

Mortgage Balance

The amount you currently owe your mortgage lender. If you are not sure, enter your best estimate.

How is the flexibility score calculated?

Points are awarded for different features. More important features get more points. The points are then added up and indexed into a score from 0 to 5.

What is a building in course of erection loan?

Also known as a construction home loan, a building in course of erection (BICOE) loan loan allows you to draw down funds as a building project advances in order to pay the builders. This option is available on selected variable rate loans.

Savings over

Select a number of years to see how much money you can save with different home loans over time.

e.g. To see how much you could save in two years by switching mortgages,  set the slider to 2.

What is the average annual percentage rate?

Also known as the comparison rate, or sometimes the ‘true rate’ of a loan, the average annual percentage rate (AAPR) is used to indicate the overall cost of a loan after considering all the fees, charges and other factors, such as introductory offers and honeymoon rates.

The AAPR is calculated based on a standardised loan amount and loan term, and doesn’t include any extra non-standard charges.

What factors does Real Time Ratings consider?

Real Time RatingsTM uses a range of information to provide personalised results:

  • Your loan amount
  • Your borrowing status (whether you are an owner-occupier or an investor)
  • Your loan-to-value ratio (LVR)
  • Your personal preferences (such as whether you want an offset account or to be able to make extra repayments)
  • Product information (such as a loan’s interest rate, fees and LVR requirements)
  • Market changes (such as when new loans come on to the market)

What is an ombudsman?

An complaints officer – previously referred to as an ombudsman -looks at formal complaints from customers about their credit providers, and helps to find a fair and independent solution to these problems.

These services are handled by the Australian Financial Complaints Authority, a non-profit government organisation that addresses and resolves financial disputes between customers and financial service providers.

What is the ratings scale?

The ratings are between 0 and 5, shown to one decimal point, with 5.0 as the best. The ratings should be used as an easy guide rather than the only thing you consider. For example, a product with a rating of 4.7 may or may not be better suited to your needs than one with a rating of 4.5, but both are probably much better than one with a rating of 1.2.

What happens to your mortgage when you die?

There is no hard and fast answer to what will happen to your mortgage when you die as it is largely dependent on what you have set out in your mortgage agreement, your will (if you have one), other assets you may have and if you have insurance. If you have co-signed the mortgage with another person that person will become responsible for the remaining debt when you die.

If the mortgage is in your name only the house will be sold by the bank to cover the remaining debt and your nominated air will receive the remaining sum if there is a difference. If there is a turn in the market and the sale of your house won’t cover the remaining debt the case may go to court and the difference may have to be covered by the sale of other assets.  

If you have a life insurance policy your family may be able to use some of the lump sum payment from this to pay down the remaining mortgage debt. Alternatively, your lender may provide some form of mortgage protection that could assist your family in making repayments following your passing.