June 24, 2014
In an ideal world you’d sell your current property at exactly the same time as buying your next one—but, unfortunately, it rarely happens like that.
Extenuating circumstances may force you to buy before you sell or vice versa. You may find your dream home prior to selling, or even prior to contemplating selling your home.
As a result, you may find yourself purchasing before you sell as a way to ensure you don’t miss out on that special property. And while buying before you sell certainly has its upsides, for example, you will only have to move once and you will effectively avoid having to rent somewhere else in between selling and buying, there are some things you need to consider before pushing ahead with this line of attack.
Reducing the price tag If you do end up buying before you sell, you may find there is pressure to sell your existing property quickly. This may result in a lower than anticipated price being accepted and could potentially leave you vulnerable to unexpected fluctuations in the property market. Furthermore, if the property market is quite sluggish when you are trying to sell, you may find the whole process takes more time than you had originally estimated.
Bridging finance required If selling your property does end up taking longer than originally anticipated, you may find yourself in need of a bridging loan in order to finance owning two properties at the same time.
Like other home loans, bridging loans will offer you a choice of fixed and variable rates and features like interest-only repayments. That said, bridging finance has a shorter loan term – usually between six and 12 months. Furthermore, the interest rate on this type of loan could potentially be higher than a standard variable loan.
While some lenders will charge the standard variable rate on a bridging loan, others will adjust their interest rate based on your circumstance and how risky they consider your situation to be.
As a rule of thumb, it is often a good idea to aim to borrow less than 80% of the value of both properties combined, that way you can avoid paying Lender's Mortgage Insurance.
When you’re doing all the sums it is important to remember that you may not get the price for your current home that your agent originally quoted. In addition, remember that there are a lot of fees, charges and extra costs that come with buying and selling property.
A mortgage broker, like myself, can advise you on your situation and help you work out the best plan of attack. If bridging finance is needed, a broker could step you through the process and ensure you are in the right product for your needs.
For further information, and to put yourself in the best position with valuable information and guidance, contact a trusted consultant from Mortgage Choice on 07 3286 7711.