October 19, 2010
Considering selling your home this season and buying another but are unsure how to juggle your finances between properties? Bridging the gap may not be as complicated as you think.
Australia's largest independently-owned mortgage broker, Mortgage Choice suggests investigating a range of finance options and speaking to a mortgage professional before making a new purchase.
Company spokesperson Kristy Sheppard explains, “Rarely does buying a new home coincide neatly with selling the existing one. Plenty of people find themselves with two properties and two mortgages to pay because they've underestimated the selling period or jumped into a purchase before thinking.”
“The timing gap, and therefore the repayment gap, may be able to be resolved but that's not always the case. Know your options back to front before moving ahead with any next home purchase.
“One option is checking if the seller will allow an extended settlement period, giving you more time to find a buyer for your current home. Or, you could also look into bridging finance.
“This is a short term loan, typically six to 12 months, which covers both the existing and new debt. However, do your homework on loan features, conditions and structures because they vary between lenders. For example, some request regular repayments for both the new and existing debt. This can create significant financial strain. Other lenders may add the new debt's interest payments to the total loan balance for the next home but allow the borrower to hold payment until the first home sells.
“Also, be realistic about the price you expect for the first property. Shopping around for valuations may give you a better understanding but be prepared to lower your expectations in order to meet your bridging finance period and/or to sell sooner. Remember: a property is worth only what a buyer is willing to pay.”
Mortgage Choice suggests those looking to upgrade or downsize their home situation also consider making time to:
Take a home loan health check
Re-evaluate your current home loan's suitability for what will be your new property situation. A health check may reveal savings can be made by moving to a different loan with a lower interest rate, fewer fees and/or different loan features.
Compare lenders' offerings
While incentives to keep all your finances with one lender may be appealing, it is important to shop around. Eager for your business, a new lender may offer a better rate, fees, features and/or service.
Visit a professional mortgage broker
A reputable, experienced mortgage broker can help you assess your finance options, whether it is weighing up the pros and cons of bridging finance, accessing home equity and perhaps keeping your first home as an investment property, reviewing your existing loan or shopping around for a new loan set-up that suits your current individual circumstances, needs and property investment goals.
For further information or to arrange an interview, please contact:
(02) 8907 0472 or 0407 416 124